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Where They Are Now

Why some algae companies thrive and some don’t survive
| October 03, 2011

Before Congress left for summer recess, Sen. Tom Udall, D-N.M., visited the New Mexico State University campus where he announced his plans to introduce legislation that could change the future of algae-based energy forever. He told the crowd that Congress shouldn’t be in the business of picking winners and losers regarding advanced biofuels technologies, and more specifically, that his bill would revamp RFS2, essentially opening the door for algae-based advanced biofuels to qualify for the cellulosic ethanol carve-out within RFS2. “This bill simply puts all advanced biofuels on a level playing field,” he said during the announcement, “and lets the market determine which emerging technologies prove most useful.”

Udall’s statements contained no surprises. Given that his state represents one of the true algae cultivation hotbeds on the planet and the tradition within the algae industry to proclaim algae’s potential, his efforts to alleviate policy restrictions to that potential seemed right in line. Udall’s belief in the potential of algae-based bioenergy seems to reflect the approach taken by many past and present algae companies, but the status quo for building and maintaining algae companies is changing. The days of seeking big funding through large claims based on even larger unproven visions of algae utilization —at least those that attract venture or other solidified funding—are over. If Udall is right and the market will decide who makes it and who doesn’t, then proven technology and established business teams are more important now than ever, given the array of government-led peer reviews of funded algae projects and the weak climate for investments that may not pay off for another five to 10 years. But if Udall’s bill is ultimately successful and the market, as he might hope, does push for algae-based biofuel, then there are some companies on the brink of breaking out. And for those that are further away, there is a lot to learn from the firms that have established themselves as real players—and from the companies that haven’t.

Who’s Who

Some algae businesses specialize in cultivation, while others focus on strain selection or enhancement, or harvesting, or dewatering, or other important aspects of algae utilization, but if they don’t fall in line with the perspective of Peter Heifetz of Heifetz BioConsulting, they might end up in the category of unknowns and bygones, or failures (such as the failed solar company Solyndra). Heifetz says the industry has been characterized in the past year or so by the maturation and transition to scaling. “This represents a substantial change from research and platform technology-driven approaches to ones focused on product enablement and process validation.” And, he adds, those changes have come from requirements spearheaded by the U.S. DOE and the USDA that follow large project management principles and oversight, in particular, stimulus projects that have very specific reporting and tracking requirements.

Some companies have shown progress and met the requirements. In February, the DOE held an Integrated Biorefinery peer review, and two algae companies, Sapphire Energy and Algenol Biofuels Inc. were required to provide updates on the status of their work.

Many other companies, however, have made major achievements in the past year. Alltech Inc. purchased a $14 million fermentation facility and has since begun working on algae cultivation for use in value-added products. OriginOil has made several substantiated announcements, including the formation of a partnership with MBD Energy that will allow MBD to utilize Origin Oil’s patented algae extraction system. Bioprocess Algae opened an algae processing facility at an existing ethanol plant, and did so in the presence of USDA’s Secretary Tom Vilsack. Aurora Algae completed the construction of its demonstration-scale algae production facility. Solix BioSystems received additional funding and has become so confident in its algae growth system that the company even changed its name from simply Solix. And then there are companies such as PetroAlgae and Solazyme that have filed for initial public offerings, indicating that they are ready to succeed at some capacity.

According to Kiki Wang, an associate at Chrysalix, an investment firm with a stated focus to invest in and support “game-changing technology companies that are helping to build the new energy economy—what we like to call the Green Elephants of the future,” the company states on its website, there are a number of reasons why some companies (unlike those mentioned above) haven’t made significant progress in the past year or so. Those include over-reliance on their technology innovations and a lack of cultivation knowledge, dewatering or harvesting. The economics, she says, can be far from expectation once these associated costs are taken into account. And, in addition to those reasons for failure, she points to the new trend that has helped the Solazymes or Sapphires succeed in the near-term. Companies that aren’t around today, she says, didn’t make enough push to optimize the market value of all the products, not just the fuel or the biomass.

Martha Marrapese of Keller and Heckman LLP, a Washington D.C.-based science and energy law firm, shares the same thoughts on the validity of multiple product approaches. “It is too significant to simply be viewed as a waste on the expense side,” Marrapese says.
Coincidentally, Heifetz says that some companies have gotten into financial trouble because they tried to over-pursue opportunities far from their core strategies for success. In some cases, nonessential technology platforms have been shelved, he says, or at least scaled back, all to ramp up scale-up operations. “All this reflects both the need to secure funding to sustain operations, as well as the hard realization that the industry is, by and large, in too early a stage to be able to sustain many ‘nice to haves’ at the expense of ‘must haves.’”

Small but Steady

Even with a tight capital market and a new push required both from public and private funding sources to see real results, there are also companies that are just hitting the scene. In Texas, OpenAlgae has based its algae strategy on a lysing oil extraction process system. In Florida, Agrisys believes it has the means to operate a large algae refinery on the promise of a “proton pulse” oil extraction unit that operates using the same premise as ultrasonic cavitation. In Arizona, Algae Biosciences Inc. has formed based on the potential of an underground supply of brackish water that will allow the company to efficiently grow algae for omega-3 fatty acid production. A New Zealand company has plans to build a demonstration-scale facility that will showcase a biomass and algae combination process to make liquid fuels, and Australia-based algae company, Algae.Tec, has started making algae growth units at a U.S. manufacturing facility in Atlanta. A Netherlands-based company, Evodos, has unveiled a new spiral plate harvesting system that creates an algae sludge, and at the University of Arkansas, an algae research team is currently being filmed for its own reality television show based on…algae.

As those companies (and reality TV teams) show, even if bioenergy consultants like Heifetz feel the current climate for algae companies is predicated on those companies to show results, the influx of unproven companies is still going strong. To help them out, he has a few ideas. Investors are interested in how a company understands its own risks and claims and, more importantly, what plans they have to mitigate those risks. “Consequently, a company should have a great value proposition, protectable technology, upside for additional products beyond the initial go-to-market case, and commitment and enthusiasm for the technology and the opportunities—but all this tempered by a strong dose of realism,” he says.

For Marrapese, success can come from the obvious efforts, such as securing financing and showing early-stage success, and even getting creative to find an interim product to generate funds for on-going development. But, the success of a value-added product line isn’t all about the money. According to Marrapese, value-added products make sense in some cases because of what they don’t do. “In many cases, these interim uses do not have as high a regulatory hurdle as fuels,” Marrapese says. “A similar approach was taken some years back in the case of aspartame,” she explains. “The first clearance the company secured was for table-top sweeteners. In a second round, they received clearance for use in desert mixes. The revenue from these uses then helped to fund the additional data and time required to ultimately file for and gain approval for carbonated beverages.”

Wang also shares some of the same thoughts on ways companies can make it. “Although we as a VC fund with a clean-energy focus want fuel as the primary product,” she says, “coproducts management is also crucial,” adding that a company they will consider looking into must have a high-performance growing system and a feasible downstream processing solution, regardless of whether that company purchased the technology or designed it in-house.

The best advice for companies that want to be around one, two, or five years from now might come from Marrapese. She says, among many things, an algae company can avoid that popular question “Where are they now?” by having a realistic appreciation for what they can accomplish with the capital they have: by looking into photobioreactors that pose fewer issues than an open pond; utilizing the latest in strain development; or creating a business strategy that includes achievable interim targets that can generate reasonable revenue. “That is a better strategy than shooting for the moon.” Why? Because, “if you miss the moon, you are lost in space.”

Author: Luke Geiver
Associate Editor, Algae Technology & Business
(701) 738-4944
lgeiver@bbiinternational.com

 

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