The Defense Advanced Research Projects Agency (DARPA) says it is just months away from producing a jet fuel from algae for the same cost as its fossil-fuel equivalent, part of a broader mission for the US military to obtain half of its fuel from renewable energy sources by 2016.

DARPA’S research projects have already extracted oil from algae ponds at a cost of $2 per gallon. It is now on track to begin large-scale refining of that oil into jet fuel, at a cost of less than $3 a gallon, headed towards $1 per gallon. A larger-scale refining operation, producing 50 million gallons a year, would come online in 2011, expected to yield 1,000 gallons of oil per acre from the algae farm.

Even Exxon, which once notoriously dismissed biofuels as moonshine, invested $600m in research last July.

DARPA is also looking at how to make dramatic improvements in the photovoltaic cells that collect solar energy.