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Great Green Hope: The Corporate Love Affair With Algae

Algae may not be ready for commercialization yet, but the federal government and several large companies are investing in its potential as a drop-in fuel and for its use in the chemicals, feed, nutraceuticals and food industries.
By Todd Taylor
The summer of 2009 was dubbed the "summer of algae" as industry, venture capital and the federal government committed more than a billion dollars to algae-related projects. Some may wonder why all this attention and whether it is deserved?
If the interest of large oil, chemical and food companies is any indicator, the answer is yes. According to Mary Rosenthal, executive director of the Algal Biomass Organization, the leading algae industry advocacy group, major companies are interested in algae as a long-term feedstock that is 100 percent renewable, feeding off of readily available nutrients, using nonarable land and nonpotable water. Algae provide companies a way to beneficially reduce their carbon footprint. Add to that the opportunity to grow green technology jobs and even a skeptic can see why the algae industry is important. The algae industry is focused on three areas: innovation, entrepreneurship and growth, and major companies want to tap those traits.

Algae-oriented companies, from producers to end-users, are now interested in working with large corporations because of their ability to provide funding and research, as well as access to and logistics for market, and go-to-market strategies-in marked contrast to the early days of ethanol and biodiesel when Big Oil was viewed as the enemy.

The largest share of the attention has been focused on algae biofuels as drop-in replacement fuels on a massive scale. There is also interest in the chemicals, feed, nutraceuticals and food industries, as the pathway to produce nonfuel algae-derived products may be simpler than fuels, the markets may be more readily accessible and the margins may be greater.


Investing in Algae

Examples of corporate interest in algae abound. The largest single investment in any biofuel feedstock or technology came last year when ExxonMobil surprisingly announced it was working with Synthetic Genomics to jointly develop algae-based biofuels. Synthetic Genomics stands to receive up to $300 million in investments from ExxonMobil based on milestones.

"This investment is an important addition to ExxonMobil's ongoing efforts to advance breakthrough technologies to help meet the world's energy challenges," said Emil Jacobs, vice president of research and development at ExxonMobil Research and Engineering Co. in a New York Times interview. "We believe that biofuel produced by algae could be a meaningful part of the solution in the future because of its potential to be an economically viable, low-net carbon emission transportation fuel."
For years, ExxonMobil has resisted investing in any form of renewable energy, its chairman famously comparing ethanol to moonshine. ExxonMobil chose algae as its feedstock due to its potential ability to achieve the scale needed to have a major impact in the transportation fuels market. "We literally looked at every option we could think of, with several key parameters in mind," Jacobs said in the same interview. "Scale was the first. For transportation fuels, if you can't see whether you can scale a technology up, then you have to question whether you need to be involved at all."

Valero Energy Corp. has invested in the recent $16 million financing for Colorado's Solix Biofuels. Valero says it is "one initiative of many that we're exploring." Other biofuels initiatives include acquiring 10 corn ethanol facilities in an effort to own the production of the ethanol it is required to blend with its gasoline. Investing in an algae-to-fuels company gives Valero another option to meet any renewable fuels requirements, reduce exposure to possible carbon costs, and serve as a possible hedge against dwindling oil supplies.

British Petroleum and Martek Biosciences Corp. signed a joint development agreement to work on producing microbial oils for biofuels applications. "As an alternative to conventional vegetable oils, we believe sugar-to-diesel technology has the potential to deliver economic, sustainable and scaleable biodiesel supplies," says Philip New, CEO BP Biofuels. BP has agreed to contribute up to $10 million to this initial phase of the collaboration.

Boeing has been heavily involved in algae related research and development, including participating in test flights for commercial aviation fueled in part by algae biofuels. Boeing was one of the founders of the ABO, seeing the vision for algal biomass as a long-term feedstock for jet fuel and knowing that it needed to be heavily involved in the development of this new industry.

UOP, a subsidiary of Honeywell, has been participating as a key processing partner for many of the largest algae companies and projects. UOP has been involved in most of the test flights for commercial and military aviation and is a participant in both of the recent U.S. DOE algae consortium awards.

Algenol Biofuels, whose algae excrete ethanol, is working with Dow Chemical to build a demonstration plant to produce up to 100,000 gallons of ethanol per year. Dow is interested in Algenol in order to use the ethanol as an ingredient for plastics to replace the use of natural gas. Algenol also has an agreement with Sonora Fields of Mexico to build an $850 million project that will deliver 1 billion gallons of ethanol for transportation fuel use per year.


Food, Feed and the Environment

Mars Symbioscience Inc. is focused on a variety of technologies related to human and animal nutrition and health, as well as environmental initiatives related to maintaining clean water and air. Its interest in algae relates to potential uses in animal nutrition, nutraceuticals and for its ability to remove carbon, phosphorous and other nutrients from contaminated water.

Cargill Inc., one of the world's largest agribusinesses, has worked with a number of algae enterprises, including UOP, Sandia Labs, Arizona State University, and the Defense Advanced Research Projects Agency. At a 2006 Cleantech panel, Luca Zullo, then director of bioenergy at Cargill, said that algae could help address "the 500-pound gorilla of the biofuel industry"- the moral and national security implications of developing crops for fuel, versus food. "I think we fundamentally need to look for feedstocks that can help with this issue, feedstocks that use underutilized water and underutilized land." While Cargill has given no signs that it will enter the algae biofuels business, it seems apparent that its capabilities in logistics, commodities, energy marketing and worldwide reach mean that Cargill could be a significant player.

An example of focusing on underutilized water for algae projects is the Metropolitan Council in St. Paul, Minn., pilot project for growing algae in a wastewater treatment plant. The project is intended to test whether the system can remove nitrogen and phosphorus from wastewater while growing algae suitable for biofuels production. Municipal wastewater treatment plants offer a promising option for algae companies as there is a ready supply of nutrients, carbon, heat and water. Algae could also help address increasingly stringent environmental regulations regarding phosphorous and nitrogen removal, saving the council significant money in the future.

Utilities are also investigating using algae for carbon capture. Great River Energy, a Midwest-based utility, has teamed with Minnesota's Ever Cat Fuels LLC to open a pilot plant at a coal-fired power plant in western North Dakota to test how algae can be used to capture carbon and then process the algae into biodiesel using Ever Cat's processing technology. Algae have also crossed over into the ethanol industry. Green Plains Renewable Energy, a Nebraska-based multi-plant ethanol company has teamed with BioProcessH2O, to build two pilot algae carbon capture plants to capture fermentation CO2. A number of companies have also investigated whether algae could be used as a supplementary feedstock for corn in fermentation-based ethanol production.

There are many opportunities in the algae world today, but a note of caution is in order. Many highly qualified researchers caution that the widespread commercial use of algae for biofuels could be 10 years away. Even nonfuel uses for chemicals, carbon capture and nutraceuticals are problematic and not ready for commercialization. Issues such as energy balance, water usage, invasive species and land use must be addressed before algae can be the king of feedstocks. But it might not be a good idea to bet against so many of the world's largest companies.


Todd Taylor is a shareholder in Fredrikson & Byron's corporate, renewable energy, securities and emerging business groups. Reach him at ttaylor@fredlaw.com or (612) 492-7355.
 

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