Block’s Indicator of Sustainable Growth

by Ray Block

If you marry venture capital with renewable energy, you can’t help getting excited about the potential for some big new industries determined to move forward. Although the consequences of greenhouse gas emissions are unfavourable, I have faith in the entrepreneurial talents of the new crop of inventors to make major breakthroughs.

A series of reports on renewable energy by the Economist (June 19 2008) included pond scum as a possible replacement for gasoline.

Another name for green pond scum is the oil-filled green algae, now seen by start ups and venture capitalists alike as a hot sector to invest in. In first generation biofuels produced mainly from corn, and in the case of Brazil from bagasse, a by-product of sugar cane, there is a finite limit to the potential for growth. So far US farmers have enjoyed high subsidies to produce corn on prime land as a fuel stock for ethanol.  And the same high subsidies applies to the grain and sugar beet farmers in Europe

The American and European need for fuel security, to reduce dependence on foreign sources of crude oil needs to be anchored to a wider technology platform, than just relying on first generation biofuels, such as ethanol and biodiesel.. There are second, third and even fourth generation biofuels that don’t use prime agricultural land, which should be preserved for growing food, rather than tied up for fuel feedstock.

The US Renewable Fuels Standard (RFS) for 2009 provides for10.5 billion gallons of renewable transportation fuel in the form of ethanol be used as a transportation fuel. This target will increase yearly until 2022, when the RFS will rise to 36 billion gallons. Of this total, 15 billion gallons will be corn based and 21 billion will come from advanced biofuels like celluosic ethanol from woody materials and other sources.

There is a lot of enthusiasm by both prominent Democrats and Republicans for extending ethanol production as much as possible, although corn based ethanol is already absorbing 20 per cent of the US corn crop. There is currently no mention in the RFS for algae derived fuels as a source for a new renewable transportation fuel. President Obama showed keen interest during the election campaign in extending the Renewable Fuels Standard further.

Jason Pyle, CEO of the algae firm Sapphire Energy in an address to the 2^nd Annual Algae Biomass Summit in October 2008 said that there was a need for a united voice on algae lobbying in Washington, participating in the national debate about the need for technology neutrality. So that Congress could see the merit of widening the definition of the materials for use in the RFS to include algae and similar materials as suitable feedstock.  

Of the nine or 10 algae companies, three are outstanding at least in terms of the capital so far raised. Sapphire Energy is at the head of the list with over US$150 million, Algenol  has $100 million received  from a Mexican business partner Biofields, which is investing a further $850 million in a related activity.  Solazyme has also been rewarded with $75 million in capital, which is a sign of the keenness of venture capital interests in this sector. Algenol Biofuels is the most remarkable of all other algae groups dedicated to supply biofuels, for Algenol with 3rd generation technology is going to turn algae back into cheap ethanol, and compete directly with the corn based fuel. 

Sapphire Energy hails from San Diego, and was told at its commencement in 2007 that the company could draw as much capital as necessary to commercialise the technology as rapidly as possible. One of its shareholders is Bill Gates’s private group Cascade Investments, and one of the original investors continuing to invest is the venture capital group Arch Venture Partners.

Sapphire says that it has created a green biofuel close to crude oil, that can be processed by existing refineries into high octane motor spirit, transported through existing infrastructure, and would be on a par with gasoline in conventional vehicles. Rather than processing wild algae, Sapphire Energy combines sunlight, carbon dioxide, waste water and photosynthetic microorganisms to produce its renewable green crude, which is achieving a 91 octane rating while meeting fuel quality standards. The company is planning to build a demonstration plant in Las Cruces, New Mexico.

From automotive fuel to jet fuel is another leap, but the US commercial airline company Continental had a demonstration flight in January 2009 testing the fuel, which was found to be satisfactory. It used a two engine aircraft, one engine powered by a blend of 50 per cent traditional jet fuel and 50 per cent biofuel. The fuel prepared by Sapphire was a mix of algae and jatropha, the latter a drought resistant inedible oilseed bearing tree, that can grow almost anywhere, even on gravelly, sandy and saline soils. More test flights are planned, before the biofuel can be substituted for regular fuel.

Solazme based in South San Francisco is concentrating on a biodiesel product and expecting to be market ready by 2010 or 2012. It is the only company so far to get approval from the American Society for Testing and Materials for its algae based diesel, which has met the ASTM D-975 specifications for petroleum diesel fuels. Its brand name is Soladiesel RD.                                                                    

Venture capital, debt and US government research funding has enabled the company to invent a fermentation process for growing algae in the dark. When market ready, the company will have built a plant capable of producing about 100 million gallons of biodiesel. In January 2008, Solazme entered into biodiesel feedstock development and testing agreement to work on developing algae optimised to produce oils for use in hydrotreatment at a refinery.

Algenol Biofuels of Florida sets a new standard of turning algae back into ethanol, which is a new departure, because hitherto only biomass products such as corn and sugar have been used. Algenol has prepared the ground well, after 11 years of research and 10 years of securing patents. To make the fuel, the modified algae is enclosed in a bioreactor full of seawater and CO2, where the ethanol is produced, which evaporates and is piped out. The company is expecting yields of 6,000 gallons per acre per year, and expects to increase that figure to 10,000 by year end. The aim is to produce yearly up to a billion gallons of algal ethanol from a Biofields facility in Mexico. It sounds incredible, but if it is successful commercially, it’s all that matters.

Chris Morrison of Venture Beat reporting on Algenol has the last word. “The similarity between all these start ups is that they’re just counting eggs. None of those eggs, as of  yet, have hatched. So while the claims continue to get bigger, keep an eye on what’s actually growing. For some schemes, it’s bound not to be as much as they hope”