Breaking Through the Bottleneck
Like links in a chain, companies in the algae industry—from early-stage operations developing harvesting methods to government-funded research seeking the best algae strains for optimal growth rates and oil yields—each, inevitably, relies on the other’s strengths to reach the ultimate goal: efficiently and economically producing algae-derived bioproducts at commercial scale and a positive return on investment. It’s this inherent, interdependent nature that will ultimately drive commercial success, says Andrew Soare, research associate for Lux Research Inc.
“The work that you do upstream has to lead directly into, parallel and really integrate with the work that you do downstream,” Soare tells Algae Technology & Business. “For example, if I’m developing an algae strain, I need to know what target product I’m going to make, how I’m going to extract it, how I’m going to cultivate the algae and so forth. On the flipside, the downstream people need to know what types of strains they’re working with, if they’re genetically modified, native or non-native algae species and so on.”
As with any emerging industry, being able to address areas that are deficient within the algae value chain will become paramount for achieving economies of scale. One of the most glaring deficiencies lies in how funding (private, public or federal monies) will be needed to help R&D and early-stage algae development companies break out of perpetual fund-raising mode. Simply being able to grow algae is a challenge in itself, but financial challenges, such as short timelines prescribed by venture capitalists, limited private investment for R&D coupled with the high capital cost of building or purchasing expensive equipment for incubating, dewatering or harvesting, can be a tall order for any algae developer to overcome in the lab or in pilot-scale. Availability of federal funds will likely continue to play a critical role in supporting basic research on fundamental and applied sciences, particularly for algae-derived biofuels.
“I’d say the hardest thing right now for the industry is to actually get the investment community to support the development of the industry,” says Richard Sayre, director of the Enterprise Rent-A-Car Institute for Renewable Fuels at the Donald Danforth Plant Science Center located in St. Louis. Sayre also serves as chief scientist with The National Alliance for Advanced Biofuels and Bioproducts, and is a principal investigator/project coordinator of the Center for Advanced Biofuel Systems as well as chief technology officer for Phycal LLC, a startup biotech outfit developing microalgae-based carbon capture and biofuel production systems.
“It’s taking the technology to the next level where I think most companies are struggling,” Sayre says. “The issue that keeps coming up over and over again from the investor community is that they’re not ready to commit funding or take on the risk for technologies that may require between five and 10 years to reach maturity.”
This is particularly true for Scipio Biofuels Inc., an early stage algae R&D firm headquartered in Orange County, Calif., lending credence to the fact that obtaining funding to prove the technology for going commercial may be easier said than done. According to Matt Snyder, president and CEO, the company has developed a novel, continuous flow system that employs closed-sealed photobioreactor cultivation equipment. The company designed a prototype unit packaged with additional features, including formulated and “species optimized” algae, pumps and harvesting techniques, that can be integrated with existing algae cultivation sites or biofuel plants. After exhausting in-house and other performance test requirements of the technology, Snyder says he’s ready to take it to the next level. But, there’s one problem.
“Proof testing costs $300,000 because of third-party proof fees,” Snyder says. “If we had this third-party certification of our productivity, we would be able to have a take-up contract for a facility in less than a week.”
For venture capital firms like Redwood Shores, Calif.-based Gabriel Venture Partners, the decision to invest in the algae industry wasn’t a preemptive one, according to partner Jim Long. Gabriel Venture Partners is backing Haywood-based Aurora Algae, a vertically-integrated algae development company that recently completed construction of a demonstration-scale facility in Western Australia. Aurora received a $2 million grant from the Australian government under its Low Emissions Energy Development Fund to support the project. Aurora’s technology features open raceway ponds that cultivate algae. The company’s demonstration facility in Australia includes six one-acre raceway ponds, four 400-square-meter ponds and four 50-square-meter ponds. Long says Gabriel Venture Partners performed its due diligence and firmly believes Aurora will pay dividends someday.
“The reason Gabriel invested in algae is because we know if companies like Aurora Algae are successful then that will open up investments in either technology companies that help the various areas of the algal supply chain, or niche companies that may specialize in algae for wastewater plants, power generation and so forth,” Long says. “In our minds, if algae turns out to be successful, Gabriel probably makes another four or five more investments in algae down the road.”
While additional funding will be required to refine and enhance all stages of the algae supply chain, there are a few areas where most of the funding should go for further development. One of those, according to Soare, is the extraction step.
“That part of the whole value chain is definitely the most important and the key technologies are ones that can circumvent those extraction cost issues,” he says.
The expression “there’s more than one way to skin a cat” applies to many things but but perhaps none more than the algae industry. Every company brings its own unique approach to how it intends to contribute towards commercialization of the sector. And every one of them holds a unique set of skills, technologies, business savvy and financial-backing. Some, like Aurora Algae, are employing a vertically integrated—or “total solution”—model to capture and develop the entire algae supply chain. Likewise, some are focused on developing one or two aspects of the entire chain in hopes of linking up with the higher class of midstream partners for business opportunities. Nevertheless, one thing is certain. As fragmented as the industry may be with vastly different processes, the gap between all of them could be closed if more “best-to-breed” offerings are available, according to Riggs Eckelberry, CEO of Los Angeles-based OriginOil Inc.
“The growth and harvest processes both need to become continuous end-to-end processes with all the vendors integrating with each other,” Eckelberry says. “We’ve got to start integrating and putting those in place, whether they’re venture agreements, OEM deals, private labeling, alliances or just product alliances that agree to recommend each other. The work has to be done to sort of dovetail all these processes into each other.”
Like other mid-stream algal technology developers, OriginOil is finding that the algae industry is collectively waiting for bona fide end-users of various technology to emerge, what Eckelberry calls “system integrators” who are capable of deploying the technology for the construction and operation of commercial algae production plants. While OriginOil’s business strategy has always been rooted in providing the technology rather than producing algae, the company originally considered manufacturing its own algae-derived products, according to Eckelberry. The company has since steered away from that strategy instead relying on establishing relationships with commercial partners, such as Australia-based mining company MBD Energy Ltd., which agreed to deploy OriginOil’s algae-to-oil technology.
Last year, OriginOil entered into a strategic partnership agreement with MBD Energy on a multi-phase commercialization program. Specifically, the agreement calls for OriginOil to supply MBD Energy with its algae-to-oil technology platform in progressively larger installations. Subject to the success of the initial test phase, which is underway, MBD will purchase significantly larger systems to serve its power station projects in Australia, beginning with a 1-hectare pilot plant at Tarong Power Station in South Eastern Queensland and expanding to full production sites at all three of MBD’s power station projects in Australia. Each of MBD Energy’s power station projects, according to the company, has the potential to grow to 80-hectare commercial plants, each capable of producing 11 million liters of oil (2.9 million gallons) for plastics and transportation fuel, including 25,000 metric tons of drought-proof animal feed annually.
According to Eckelberry, OriginOil’s new strategy is to speak directly to customers, adding that it plans to pursue distribution agreements with companies like MBD that have global sales networks. He also predicted out-licensing agreements to put noncore technologies to work for specialized companies, while retaining usage rights for its own direct customer base.
“We believe there are enough well-funded algae technology end-users emerging at our rate of commercial development,” Eckelberry says. “The deal flow of genuinely funded companies is increasing at a rate that is pretty sustainable for us. We’re pretty happy with how the market is coming into being at the same time as our technology is evolving.”
Author: Bryan Sims
Associate Editor, Algae Technology & Business