Aqualia's EU-backed project has produced its first crop of algae biomass with a high energy potential.
The biofuel demonstration project, All-Gas, launched in 2012, operates at a waste water treatment plant in Cadiz, Spain and will run for five years.
The biomass obtained shows a particularly high-energy potential relative to its digestibility level, with a methane production capacity of around 200-300l of gas per kilogram of biomass processed by anaerobic digestion.
The microalgae also allows the purification of wastewater to a high standard.
The biofuel produced by the All-gas project is expected to power 200 vehicles by 2016.
When the project reaches its demonstration phase, the biogas produced will be used to power public buses and garbage trucks in the region of Cadiz.
FCC Aqualia project coordinator and Innovation and Technology director Frank Rogalla said, "This original new approach to bioenergy means that Spain's 40 million population could power 200,000 vehicles every year with a single toilet flush.
"The All-gas project is going to change the face of wastewater treatment by generating a valuable energy resource from what was previously considered undesirable waste."
The raw material used to obtain the biofuel - wastewater - is a waste product, whose treatment actively consumes energy and resources.
The EU FP7 programme has co-financed the €12m, five-year project, which is co-ordinated by Aqualia together with six EU partners.
Feyecon Group, MTD and Hygear, as well as engineering company BDI - BioEnergy International, and research organisations, such as The Fraunhofer Umsicht Institute and The University of Southampton, are partners in the project.
The new technology includes new patents which avoid controversial issues of first generation biofuels - on the contrary, the technology helps clean up the environment with simultaneous waste water treatment.
The European Commission's 7th Framework Program has provided €7m funding for the project, which will be implemented in two stages at the Cadiz waste water treatment plant in Spain.
All-gas project officer Kyriakis Maniatis said: "To help meet the EU's ambitious renewable energy targets, we are supporting innovative approaches, and algae biofuels are one of the most exciting prospects - the All-Gas project was selected among 20 proposals we received for that topic."