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Roger Woodworth is confident in his company's investment in Seattle biotech firm Matrix Genetics.

Woodworth, chief strategy officer at Spokane-based Avista, said the venture-capital arm of his energy company financed Matrix Genetics because it had an established list of patents and a reputable research team, one that is developing new strains of blue-green algae for use as a substitute to fossil fuels and petrochemicals.

"As much of a longshot as many think it is, there is some merit," said Woodworth.

Although the companies declined to disclose the amount of the investment, which they will announce Wednesday, Matrix Chief Executive Margaret McCormick said it would allow her company to spin out from agricultural biotech firm Targeted Growth and continue research well into the next year.

"It gives us plenty of time to develop our story, to get the collaborations in place, to raise a large amount of financing in probably the next 12 to 18 months," she said.

Although now a separate company, Targeted Growth is still the majority owner of Matrix Genetics, which has five employees and plans to add 10 more with these new funds.

Avista will earn a positive return on investment if Matrix Genetics can find enough customers to use algae derived using the patents it owns. This will happen as the industry develops, said McCormick.

"It's a play on intellectual property," said Woodworth.

The prospect of algae as a biofuel is gaining popularity because it is relatively simple to grow and, unlike corn and soy-based fuels, it doesn't compete with consumer usage in the food market.

Robert Hebner, director of the Center for Electromechanics at the University of Texas, researches algae as a fuel source. He says the microorganism can produce 2,000 to 3,000 gallons of oil per acre per year. Corn, in contrast, produces approximately 400 to 450 gallons per acre per year.

Additionally, a report from the Pacific Northwest National Laboratory last year said algae has the potential to replace 17 percent of the oil the U.S. imports, if grown in the hot humid climates of the Southeast and the Great Lakes region.

Matrix technology is trying to do even better. Senior director Mike Carleton said the company's research involves manipulating algae genes in order to increase oil content. One way Carleton's team does this is by replacing a sugar-producing gene with one that makes lipids.

McCormick said Matrix's research is essentially reproducing what happens under the Earth's surface in the creation of crude oil.

"We're like a synthetic diamond," she said.

Despite the large oil-output levels of algae, a major challenge is the cost of large-scale production. While the sector has grown sharply in the past five years to approximately 200 algae companies in the U.S., economic viability remains elusive.

"The challenge is to find a cost-effective way to find key elements and a cost-effective way to find water," said Hebner. Expensive ingredients like phosphorus and nitrogen drive up the costs of production, he said.

To help this cost equation, McCormick said Congress should put algae production on a level playing field with cellulosic biofuels created from inedible plant materials. Producers of those fuels are eligible for a tax incentive of up to $1.01 per gallon, according to the Department of Energy.

The Senate Finance Committee this month approved a bill to extend this credit to algae fuels.

The algae industry has one particularly influential supporter promoting its cause: Boeing.

The company is "helping set the policy stage to make the case for these types of renewable feedstocks," McCormick said. "They've put in place different aviation fuel users groups."

Boeing officials are expected at Wednesday's announcement to convey its interest in this type of fuel.

"What's great about the biofuel industry is that you've got the customer base that's helping to push the development of these technologies," McCormick said.

Karl Baker: 206-464-2046 or kbaker2@seattletimes.com