Solix Biofuels Inc. said Thursday it has started the production of oil made from algae at its Coyote Gulch Demonstration Facility, with full-scale commercial operation set for late summer.

Solix, a Colorado State University startup company based in Fort Collins, has been working on techniques to produce renewable, biologically based fuels from microscopic algae organisms.

“We are ready to prove to the world the viability of algae as an alternative to petroleum-based fuels,” Solix COO Rich Schoonover said in a statement.

Coyote Gulch is located on a two-acre site in the Durango area on land provided by the Southern Ute tribe.

Algal oil production began July 16, Solix said. It said Coyote Gulch is expected to produce the equivalent of 3,000 gallons per acre per year of algal oil by late 2009.

Solix, started in 2006 and financed by private equity, is an outgrowth of the U.S. Department of Energy’s Aquatic Species Program, launched in 1978 to research ways to produce biodiesel fuel from algae.

Others in the field include oil giant Chevron Corp. (NYSE: CVX), based in San Ramon, Calif., which signed a contract with Golden’s National Renewable Energy Laboratory (NREL) in November 2007 to pursue algae-based fuels.

Experts estimate the organisms can make as much as 8,000 to 10,000 gallons of oil per year per acre, compared to 50 or 60 gallons per year using soybeans, 20 gallons using corn, and 150 gallons using canola or rapeseeds.