Fuel from algae growing beyond the laboratory

NEW YORK -- Paul Woods walked up to a long, knee-high tube of flexible, translucent plastic laying on the ground and pointed to droplets of fluid visible on the inside surface.

"That's the condensate that contains ethanol," said the co-founder and chief executive of Algenol Biofuels Inc., pointing out how his company's water-filled "bioreactors" produce fuel from algae.

Where some people see pond scum, others see green crude, dreaming of the advent of Big Algae instead of Big Oil.

"The algae are much more productive at taking sunshine and carbon dioxide and turning it into product," according to Woods.

"Our process can yield about 6,000 gallons of ethanol per acre per year, compared to corn at about 400 gallons per acre per year."

As researchers, the government and corporate America look to a plethora of alternative fuels to drive domestic supplies of energy, the quick-growing, water-based plant organism known as algae looms large as a major energy contender.

Algenol is but one of a slew of algae players that has drawn venture-capital backing, partnerships with S&P 500 Index companies and tens of millions of dollars in grant money from the U.S. Energy Department. By some estimates, about 200 businesses are engaged in some aspect of turning algae into fuel.

Algae makes oil and other chemicals internally, and its ability to synthesize sunlight and carbon dioxide could deliver millions of gallons of fuel a year, eventually displacing imports, proponents say.

Many challenges remain, though, including finding the right algae strain and keeping it robust; the limited supplies of fresh water around the world; and the energy-intensive process of making the fuel by separating algae from water.

Players and deals

Results so far have been limited mostly to laboratory and other experimental settings. There are no industrial-scale, algae-to-fuel operations up and running, but that may soon change as several companies jockey for position in this emerging biofuel category.

Algenol Biofuels was born four years ago with $70 million in private funding. It won a $25 million grant from the government to help it use seawater to grow algae at a site in Freeport, Texas, plus $10 million from Lee County, Fla., to build a new research facility there. Algenol has partnerships with Dow Chemical Co. (DOW 29.97, +0.38, +1.28%) and the Linde Group gas company.

Sapphire Energy Inc. has raised more than $100 million in venture-capital investment, including money from Microsoft Corp. (MSFT 29.79, -0.09, -0.30%) co-founder Bill Gates. The company plans to break ground in September on an algae-fuel plant in New Mexico with a $50 million grant from the Energy Department.

Solix Biofuels Inc. traces its origin to the Energy Department's Aquatic Species Program of 1978 to explore production of biodiesel from algae. In July 2009, it launched its Coyote Gulf demonstration facility in southwestern Colorado through an alliance with the Southern Ute Native American tribe. Valero Energy Corp.(VLO 20.19, -0.11, -0.54%) is listed as a partner.

Solazyme Inc. has a plan to provide 20,000 gallons of marine fuel and 1,500 gallons of jet fuel to the U.S. Navy. It's working with Unilever PLC (UL 28.66, -0.38, -1.31%) on algae-based, personal-care products. It also received a $22 million federal grant from the Energy Department to build a biorefinery in Riverside, Pa. Investors in the firm include Braemar Energy Ventures and Lightspeed Venture Partners.

Synthetic Genomics Inc. made headlines last year when oil major Exxon Mobil Corp. (XOM 66.64, -0.31, -0.46%) committed up to $600 million to the company to make next-generation, algae-based fuels and chemicals. Genetic-engineering guru J. Craig Venter co-founded Synthetic Genomics along with marquee scientist Hamilton O. Smith. BP PLC (BP 57.14, -0.81, -1.40%) invested in 2007.

Algae farm

Algenol's crops of enzyme-enhanced, blue-green algae thrive in plastic bioreactors and release ethanol, which is then refined from the fluid that evaporates, condenses and runs out in troughs. The organisms can't survive outside of the bioreactor and don't pose an environmental risk, the company's chief executive said.

Woods compares his no-harvest strategy on algae to milking the cow instead of slaughtering it. "We don't kill the algae, we don't harvest them or dewater them," he said. "All of those things can be done, but they're energy-intensive and they're costly."

The algae also grow in salt water, a much more abundant resource than fresh water, Woods noted.

Showing a visitor around Algenol's experimental site in rural Florida, he explained how the algae start life in test tubes under bright florescent lights. "We have access to 10,000 types of algae. Whether they come from Hawaii, Australia, Europe or America, we've collected them all over the place. Right now, there's roughly 70 that we think are very special."

As the cells multiply, they're moved into plastic bags that are hung outside under a protective screen. Then they're put under progressively thinner screens to acclimate the algae to the full force of the subtropical sun.

The organisms then go into the bioreactors, where instruments measure humidity, nutrients, oxygen and other data points. "These photo bioreactors ... act as mini-greenhouses," he said. "They not only house the algae, but keep them in a pretty consistent environment. On top of that, they serve to collect the ethanol that evaporates after the algae make it."

At sites like this one, trial and error often come into play. An earlier model of the bioreactor proved vulnerable to encroachments by curious frogs, so the company switched to sealed plastic bags, lined up in rows. Algenol also is talking to Linde about using pure carbon dioxide to feed the algae, or possibly drawing CO2 from the air.

Once the company gets everything right, the operation will be scaled up to an industrial level, potentially yielding much more ethanol per acre than corn, the most widely used source for the stuff in the United States.

Tapping the market

Woods said he first starting working on the idea of using algae to make ethanol in his college days at the University of Western Ontario back in the 1980s.

To help his company grow, the executive hopes to float an Algenol initial public offering or a private placement of up to $100 million this year. Algenol has worked with UBS AG /quotes/comstock/13*!ubs/quotes/nls/ubs (UBS 15.23, -0.36, -2.31%) as an adviser in recent months, and the investment bank could help put together the next financing round, according to Woods.

"We have a very good story to tell," he added. "We have excellent partners. They put us through grueling due diligence. I think we're ready to go for a much more public way of raising money."

Algenol now employs about 120 people, and over the next five years that could grow to 200 or 300. Woods also envisions large commercial facilities with as many as 4,000 employees.

At the smaller research facility now running in Florida, Algenol's team of biologists and other specialists say that they wouldn't mind if they managed to change the world.

" Right now, we're sending $700 billion every year offshore -- it's unsustainable," Woods said. "If we can grow the energy we need even for 20% or 30% of our domestic supply, that's enough to replace OPEC and give us a significant chance of keeping our money here. It would be very good for the American economy and also will keep the price of crude much lower."

source: marketwatch