Algae arms race
It’s this simplified view of the algae business that has fueled a recent press storm: While some reporters are singing the praises of the new industry or quoting CEOs who claim they can make algae-based biofuel on the cheap, others are laying out conspiracy theories and looking at algae-based fuels as a high-tech pyramid scheme. Of course, it’s not that simple.
Algae first attracted attention as a fuel source during the 1970s oil crisis, when researchers at the National Renewable Energy Lab (NREL) were awarded hefty federal research grants to look into a variety of alternatives to oil. The NREL team looked at both the biology side of the equation — which strains of algae could be easily processed into fuel? — and the electrical and mechanical engineering side — what sorts of machines can be created to grow large amounts of the “right” algae? The research results were compiled into a dense and detailed report on the potential of algae to make fuel, a report today’s algae-based fuel proponents consider the algae Bible.
When gas prices went down, so did NREL’s funding, but the algae research was continued by various universities, including Ohio State University, the University of California at Berkeley and the Massachusetts Institute of Technology. Though research has continued, the final analysis has essentially remained the same: Algae-based fuel has enormous potential, but the industry is also facing some significant challenges.
Martin Tobias, CEO of Imperium Renewables, recently told a room full of cleantech venture capitalists in San Francisco that algae is a few years behind even cellulosic ethanol in terms of providing the quantities necessary to feed a commercial scale biofuel facility. Cellulosic ethanol, or ethanol derived from waste and quick-growing plants such as paper pulp and switchgrass, is largely viewed as a more sustainable alternative to oil than corn-based ethanol, which eats up land and is energy-intensive to produce. Still, no one is currently producing cellulosic ethanol at a commercial scale, and recent reports from the National Resource Defense Council and the University of Tennessee cite far-off dates such as 2050 when discussing cellulosic ethanol as a viable alternative to current petroleum-based oil consumption. Such estimates likely put algae even farther out, despite claims by most in the business that its heyday is coming in the next five to 10 years.
Still, it is possible to grow greater quantities of algae more quickly and in much smaller spaces than needed for even switchgrass. Imperium Renewables is constructing a 100-million-gallon-ayear biodiesel plant in Grays Harbor, Wash., set to open in May, and Tobias says he has a standing order for the first algae company able to feed that high of a volume.
Lissa Morgenthaler-Jones, CEO of LiveFuels Inc., says the volume problem wouldn’t exist if money weren’t an issue. “If the country got serious about algae-based biofuels, we could build ponds of unwanted brackish and saline water in an area smaller than the Sonora desert and crank it out,” she says. “But you’d be paying $20 to $40 a gallon instead of $2.50 to $3.”
There are numerous factors driving up costs: for starters, choosing which algae to work with. There are hundreds of thousands, if not millions, of strains of algae on Earth. Little is known about nearly 20,000 of them, and only four algae genomes have been mapped, according to Morgenthaler-Jones. Each algae strain has particular characteristics that determine the type of fuel it could make: Strains high in fat are suitable for biodiesel, while strains high in carbohydrates are better for ethanol. A handful of companies are also working to extract hydrogen from algae.
Companies that choose the right algae are at a distinct advantage: If an ethanol company starts out with a high-carb algae, it’s in good shape for producing as much of the final desired product as possible. But how to choose? Some companies, such as GS CleanTech, opt to focus on just one strain and perfect it. Others, including Solazyme and PetroAlgae, are attempting to engineer desirable traits. Still others, such as LiveFuels, are working with several strains to find the best varieties, and studying each part of the process from growth to extraction.
Companies also face the costs of growing the algae. There are two options: use either closed photobioreactors or open ponds. Either way, the key ingredients are simple: CO2, water (the dirtier the better) and sunlight. Bioreactors afford greater control over temperature, water conservation and invasive species, which makes them attractive for companies looking to grow algae with particular traits, but they come with a much larger price tag than a pond of stagnant water does.
The cost of bioreactors is so high, in fact, that none of the companies designing them is ready to put a public price tag on them. Project finance is still a huge issue for the algae-based fuel industry. Until someone proves algae can produce large quantities of competitively priced fuel, no one wants to scare off potential investors with extremely expensive equipment.
Rich Krablin, vice president of project management at GS CleanTech, one of six subsidiaries of GreenShift Corp, says “there are no realistic cost estimates on producing algae in bioreactors. We don’t know what to expect, but we do know that there are significant efficiencies built into the technology, and that leads us to believe that it will end up being cost-effective.”
The company licensed its technology and research on its initial algae strain from a research group at Ohio State University that was involved in the original NREL report. GS CleanTech is currently building a pilot bioreactor to put its technology to the test. Another GreenShift subsidiary, GS AgriFuels, is already in the ethanol and biodiesel business, and GS CleanTech plans to feed its algae into existing processing agreements through GS AgriFuels. Though the company is not offering the sort of hard financial data investors tend to look for, its market cap is $114 million.
But not everyone is buying into GS CleanTech’s success. A recent Forbes article noted a growing number of shell companies getting into the renewable energy business to capitalize on publicity. The only algae-based fuel company mentioned was GS CleanTech.
While the Forbes article is skeptical of algaeto- fuel technology itself, Peterson Conway, who heads up West Coast development for similarly named GreenFuel Technologies, says GreenShift’s technology is based on solid research. Still, he says GreenFuel was worried about being confused with GreenShift after the Forbes article came out.
“That article really scared everyone,” Conway says. “People in this business are being so secretive, and when you do that there are bound to be conspiracy theories; and then there do seem to be shell companies starting up to benefit from the attention currently being given the industry.”
GreenFuel Technologies is the only company in the sector currently turning a profit. GreenFuel works with a somewhat different business model than other companies in the sector. In some cases, the company licenses its technology to a third party that contracts with utilities for land and CO2 emissions. GreenFuel then owns the biofuels. The model has worked well for the company overseas, with contracts in Europe and Africa already underway. In the United States, GreenFuel typically sells a bioreactor outright to a utility and acts as the operator.
GreenFuel’s bioreactors are always sited on cheap, marginal land around power plants — it gets CO2 to feed its algae while using marginal land resources. Because the company is just coming out of research and development, Conway says, it helps to partner with companies that can take the blueprints and replicate success.
Still, even GreenFuel doesn’t have a price tag on its bioreactor. The company is out of the research phase but still confirming design specifications for its bioreactors; Conway says the company is looking at changes that could bring down the cost. But even at its current cost, he says, the GreenFuel bioreactor could pay for itself in five years.
Meanwhile, Morgenthaler-Jones is firmly behind pond-based algae production, and she cites the NREL report when she calls bioreactors “just too damn expensive.”
“We’ve done all we can on the mechanical and electrical front,” she says. “That’s made clear on about every third page of the NREL report; what we need to do now is work on the biology.”
Specifically, the industry needs to find ways to grind down the costs of growing, harvesting and processing algae into fuel. No one has been able to make an algae-based fuel at a price comparable to petroleum, and until someone can, the technology will be relegated to the domain of science project rather than viable business prospect. How to extract biodiesel or ethanol from algae is, in Conway’s mind, the big question everyone in the algae business is ignoring. “Everyone says they’ll borrow from existing technologies for extraction, but it’s not that simple,” he says, referring to companies that plan to supply algae as a feedstock to existing biodiesel and ethanol plants. “You’ll be doing it on a huge massive scale, and the people that are going to answer the extraction question at that scale are the Chevrons, the Monsantos, the ConAgras, Cargills, ADMs of the world.” Conway is quick to point out that these are all companies actively pursuing partnerships with GreenFuel.
Other companies in the industry seem to see extraction as a bridge they’ll cross when they get to it. GS CleanTech plans to use existing biodiesel and ethanol processors for its pilot project, as does LiveFuels. James Sears, founder of Solix Biofuels, says extraction is the wrong way to go entirely. Sears espouses introducing algae to the Fischer-Tropes process — a technique that has been used for decades by countries cut off from oil exports, such as World War II-era Germany and South Africa during Apartheid, in which coal is burned to create fuel.
It’s an incredibly polluting process traditionally; but fed by algae instead of coal, Sears calls it “a thing of beauty.” The CO2 from power plants feeds the algae, he explains, energizing it and generating pure oxygen. Sears says he believes the oxygen, combined with the algae biomass, could be fed into the Fischer-Tropes process instead of coal to get liquid fuel. If the process works, companies could stop worrying about particular strains of algae and focus on overall volume.
Has it been done? Not exactly, Sears says, but he has been meeting with industry experts and engineers in the past several months who think he could be on to something. When Sears founded Solix Biofuels, The University of Colorado provided $500,000 to develop the company’s technology — the first and only time it has given money to a private venture. With all of the costs, where are other algae companies getting the money to continue research and development?
Unlike much of the cleantech industry, algae research is not funded solely by venture capital. GreenFuel is an exception, with $22 million from Draper Fisher Jurvetson, Polaris and Axis Partners. LiveFuels is funded by the Morgenthaler family and currently looking for external sources, and GreenShift Corp. is an over-the-counter public company. Its stock sells for about 4 cents a share.
The timeline for delivering algae-based fuel to market varies from one year to 10 years from now. LiveFuels has set 2010 as the target for producing 100 million gallons of commercially viable, algae-based “supercrude,” with milestones set at 1 million gallons by 2008 and 10 million by 2009. GreenFuel has already licensed its technology to companies in South Africa (Global Renewable), Arizona (Arizona Public Services), and Australia and New Zealand (The Victor Smorgon Group). The company plans to finalize design specifications for its bioreactors and begin turning its Arizona-based pilot plant into a commercial-size plant by the end of 2007.
Solix Biofuels is based on bioreactor technology, but founder James Sears has more of a farmer’s take on growing the algae business. “We’re talking about the domestication of a new crop that needs to sustain itself 365 days a year,” he says, “and no matter how much money you have, you need to test that crop through a number of seasons. Money won’t accelerate that research beyond a certain point.”
Sears also notes that collaboration is a common theme running through the mind of would-be algae players: The industry needs to share information. Lissa Morgenthaler-Jones views collaboration as the key to LiveFuels’ entire process. When she got into the algae business, she says, she felt that the current companies were focusing too much on either the bioreactor technology or perfecting a specific strain of algae. So she started LiveFuels with the intention of taking what she calls a common-sense approach and looking at every possibility and every step of the process. To that end, LiveFuels has partnered with a consortium of labs, including its own Menlo Park-based lab, Sandia National Laboratories and the National Renewable Energy Laboratory, and is seeking to expand its partnerships.
Nearly every industry insider who spoke to SIJ mentioned a need for collaboration and information sharing, but no company is currently sharing much of anything, and most are keeping mum about any technological advances. It’s the wrong approach to starting an industry, Sears says. Instead, a combination of appropriate legislation and shared system engineering processes are crucial to building a solid algae industry. “We have a chance to start from the beginning and come together to create a legislative base that incorporates both fuel sustainability and environmental sustainability,” he explains.
On the system engineering front, Sears points to dozens of companies working independently to solve the same problem, designing various systems according to uncertain requirements and information. “I’m agitating for a national system engineering collaboration to define a set of standards,” he says. “We need to break the big problem of biofuels from algae into well-defined smaller problems that individual companies can work on in a collaborative way.”
And Sears claims he isn’t just trying to pacify environmental activists. “No one is going to spend billions of dollars on this technology unless it’s proven practical for years and there’s clear legislation in place that ensures investors that no one is going to lie down in front of a bulldozer to stop your project.”
In an effort to spur collaboration, Sears helped found Solar Democracy, a nonprofit that aims to map the characteristics of indigenous algae for every location on the planet. “If we get organized with a national system engineering effort, we could have profit-making plants in 5 years,” he says. “If we don’t, it could take 10 years. But we will be doing it.”