Turn and Face the Strange: The new Algae makes a Bowiesque pivot into new markets

BD TS 070116 algae smWhat are our tiny green friends doing to earn their living, now?

2009 – that was the Summer of Algae. It seemed like every venture forming had algae somewhere in its sights.

The ventures were bold in their vision — renewable fuels, proving protein for a hungry world, and recycling CO2, re-using land that had fallen out of food production. It was a technology platform that checked all the boxes for a world increasingly focused on renew-recycle-reuse.

But the RE in algae these days has been, more or less, REposition. Possibly REthink. Certainly not much REfinance, or REcommit to the original targets. The algae business models of 2009 burst up in a bloom, and busted when OPEC took the oxygen out of the water or when the costs just stubbornly refused to go much below $10 per gallon for algae oil.

Confidence was high back in ’09.

As Scripps Institute’s Tony Haymet put it in 2012, “25 grams per square meter per day with a 25% oil content, that’s table stakes, but we know how to do that now.” That kind of yield (at 85% uptime), checking the calculator, translates into 77 tons of biomass per hectare per year, with 19 tons of algae oil. At $1000 per ton averaged across the biomass — and fishmeal and diesel prices certainly supported those hopes — it sounded like commercial-grade economics.

What the ventures showed in the labs, however, struggled to be verified in the field. Capital costs became the bottleneck for ventures pursuing closed photobioreactor systems, while operating costs and low yields generally bedeviled those pursuing open pond systems.

Algae, yes. Algae that provides solutions to real-world problems, certainly. Affordable algae for every market including the Nirvana of Fuels, not yet.

It’s much as David Bowie captured in Changes:

I still don’t know what I was waiting for
And my time was running wild
A million dead-end streets
Every time I thought I’d got it made
It seemed the taste was not so sweet
ch-ch-ch-ch-Changes, turn and face the strange
ch-ch-Changes

Fuels: REfocus in the pond

In April, we learned that in Australia, Muradel had refocused its commercial scale up of its Green2Black technology not using microalgae as it had been originally but instead using tires and biosolids from municipal waste as feedstock. The company had hoped to get production cost to under A$1 per liter but hadn’t managed to get it under A$9.9 per liter using microalgae. The expansion into new feedstocks is being funded thanks to a federal grant as well as A$500,000 from the South Australia government. The company would continue with algae as a feedstock for higher-value products — such as nutraceuticals.

There hasn’t been much overt activity from BioProcess Algae — which has maintained a small demonstration project at the Green Plains Shenandoah, Iowa ethanol plant since 2009  These days, the venture says that it designs, builds, and operates commercial scale bioreactors that enable efficient conversion of light and CO2 into high value microbial feedstock. That’s the Grower Harvester bioreactors, which can fulfill feedstock needs in the animal feeds, nutritionals and transportation fuels industries for cost competitive alternatives with favorable carbon balances. However, we have not yet seen an expansion.

But DENSO has been on the move. Last summer, the company announced that it would build a large 20,000 square meter test facility for the culture of Pseudochoricystis ellipsoidea, an oil-producing microalga patented by DENSO that is used to help reduce CO2 emissions. The new facility located in Amakusa, Kumamoto, Japan, will be used to perform verification tests needed to establish large-scale microalga cultivation technologies required to improve biofuel production efficiency. The facility was scheduled to start operations in April, 2016 — but there has not been a corresponding “we’re open” update yet from the company. To date, DENSO has been working at 300 square meter scale at its Zenmyo Plant site in Japan.

Omega-3s

It’s been a common refuge for algae ventures, focusing on niche products such as omega-3 fatty acids or astaxanthin. There, the product prices can support relatively high-level algae costs. Sapphire Energy has refocused there, and Heliae too. It’s been a year since new Sapphire CEO Jamie Levine made the conference circuit with a “commercialize now” business focus on nutraceuticals; not much since that’s appeared on the radar. It’s beginning to look like a M&A opportunity more than an owner/operator — but it goes in the “we’ll see” bucket.

Back in 2013, Valicor was one of the companies leading the charge into omega-3s. Qualitas Health and Valicor Renewables had announced a strategic partnership to accelerate the launch of high-EPA Omega-3 oil from algae. The companies said they had joined forces to combine their expertise and experience in biology, advanced chemistry and technology commercialization to make a significant impact on the global Omega-3 market with next-generation algae based products. But we don’t hear much at all from Valicor any more about their algae business. But Qualitas continues in the omega-3 business with its Almega PL product line.

As Qualitas puts it, “Unlike Omega-3 oil extracted from marine animals such as fish and krill, containing varying EPA to DHA ratios, Almega PL contains only EPA and no DHA, thus delivering the highest possible EPA to DHA ratio for optimal clinical outcome.”

Those fuel-secreting cyanobacteria

As the pure-play algae ventures REpositioned, attention from the energy sector focused on a pair of cyanobacteria ventures, Algenol and Joule. Algenol embraced the algae industry, Joule generally ran at light speed in the opposite direction — befitting a class of organisms that aren’t quite like “the usual suspects of bacteria” and aren’t quite like algae, either. Cyanobacteria, blue-green algae, take your pick. The Joule and Algenol technologies were remarkably the same in many ways — excepting the design of the bioreactors. Feed CO2, water and nutrients to a modified organism, and it secretes ethanol, or even diesel or jet fuel.

Algenol has retreated, with the departure of its visionary CEO and founder Paul Woods, to stealth mode. And there’s been investor panic. It’s mot clear whether the long-standing target of $1.00 per gallon (operating cost) ethanol was unachievable in an investor-friendly time frame, or whether the regulatory complexities of entering the fuels market and low oil prices dimmed the enthusiasm. They’ve been in search of a near-term market to generate some cash flow.

Meanwhile, Joule Unlimited merged with Red Rock Biofuels — which has its own fuels-based business model involving gasification and conversion of gases to liquid fuels, with some brand-name technology partners, a USDA loan guarantee, and brand-name off-takers too — and getting that venture financed has been Joule’s primary mission of late, pushing its fuel-creating cyanobacteria into the background, for now.

The relentless pursuit of fishmeal

Elsewhere in the Algae Cinematic Universe, there was the fish meal market. The question becomes, what kind of algae will they eat, and can it replace high-priced ingredients, or low-priced ones? We’ve yet to see a major fishmeal strategic enter the sector as an investor or through acquisition. Suggesting that “replacing high-end fishmeal with algae” is no slam-dunk. But $1000+ per ton fishmeal prices remain a tempting target.

Most prominent among those targeting fishmeal is Cellana, which is working hard on a blend of fuels, nutraceuticals and fishmeal as its three main products from its proposed commercial-scale facility. Ultimately, the profit is largely driven in their model by high prices for omega-3s. Fishmeal and fuels drive volume.

Two others in the algae fishmeal sector, Aquafauna (more on them here) and Higashimaru (the latter is also active in the astaxanthin R&D, see here.)

Spirulina

And then, there’s spirulina. There, Earthrise continues to be a star player. The Earthrise algae farm in Southeastern California is the world’s largest spirulina farm — 37 ponds, each 1/2 hectare in size — or 18.5 hectares in all. As Earthrise advises, “Ecologically grown Spirulina contains one of the highest densities of protein found in any food, offers more beta-carotene than carrots, more iron than raw spinach, and more calcium than milk on gram per gram basis. Whenever possible, replacing other foods in your diet with life-enhancing micro-algae is good for you and the health of our planet.”

Astaxanthin

Another product that has star power is astaxanthin. It’s a dark red carotenoid found in nature primarily in aquatic animals such as salmon, trout, krill, shrimp, crayfish, and crustaceans. The Natural Algae Association says that it is “one of the most powerful lipophilic antioxidants yet discovered. it has the unique capacity to quench free radicals and reactive species of oxygen and to inhibit lipid peroxidation. Studies have shown natural astaxanthin to be over 500 times stronger than vitamin E and much more potent than other carotenoids such as lutein, lycopene and β-carotene.” Producers include Cyanotech, BGG, Alphy Biotech and Alga Technologies.

Flue Gas treatment

Hy-Tek Bio has been developing technology using “a unique strain of algae (HTB-1) – isolated from thousands of strains – to absorb up to 100 percent of the GHG emissions from flue gases produced in industrial manufacturing and power generation. The algae that Hy-Tek is producing have, according to the company. a 50% lipid content and contain a high level of the antioxidants Lutie and Zeaxanthin. We have not yet seen a major project announce — so we’ll put that one in the “wait and see” department.

Water Treatment

Clearas has been active in this field. It’s Advanced Biological Nutrient Recovery system is described as “a controlled and continuous flow environment that leverages a facility’s existing microbiology – algae and other biological organisms – to recover excess phosphorous, nitrogen and other high-profile contaminants in wastewater. An extension of the activated sludge process, the ABNR system is a bolt-on and modular solution for existing wastewater treatment infrastructure. Clearas has a current project at Grand Lake Saint Mary’s, in Mercer County, Ohio, focused on nutrient removal in Grand Lake

REfocus from the fermentation guys

For those who could advance past nutraceutical economics but could make it as far as fuels, the advanced nutrition markets became popular. There was the human side — where algal oils could provide a healthy alternative for food ingredients. Most prominently among these, Solazyme became TerraVia, and focused on advanced nutrition with its AlgaVia whole algal flour and other products. It’s touted entry into Industrials — well, it’s been a mixed bag. On the one hand, a break-out popular product in Algenist skin care products and a signature offtake deal with Unilever providing base-load demand for the company’s commercial-scale project with Bunge in Brazil. On the other hand, the company has changed its name and focus and stated that the industrials business may be subject to disposition so that TerraVia can focus on advanced nutrition.

A good comparable for TerraVia is Fermentalg, which also uses a fermentation approach to produce micro-algae, and also focuses on human nutrition, animal nutrition, cosmetics, green chemistry and biofuels, in that order. Not at all unlike the product set for the old Solazyme. The company reached a high point in 2014 when it raised $55.9M in an IPO, and a market cap of $148 million. Investor enthusiasm has been substantially diminished by many of the factors that hit TerraVia, and the company market cap today has dropped to $27.48M, though a portion of that is the falling value of the Euro.

Fermentalg’s hopes ride to a great extent on a product called DHA, and one called DHA+. .DHA, an essential fatty acid of the omega-3 family, is known for its role in the prevention of numerous illnesses. It is recognized for its beneficial effects on the brain (tissue, healthy development and increase in intellectual capacity) and the heart (reduction in triglycerides, cholesterol and the risk of cardiovascular disease).  From 2017, Fermentalg also plans to market DHA+, a highly innovative product in human nutrition and food supplements which shares all of the benefits of DHA but which also has a higher concentration of essential fatty acids and a lower concentration of saturated fatty acids for very high value-added applications. Later on will come the “large-scale production of 3rd generation biofuels,” the company noted in its latest strategic update.

A couple of ventures Who Fell to Earth

Meanwhile, former high-flyers such as Aurora Algae (once Aurora Biofuels) and Solix Biotechnologies (once Solix Biofuels) have lapsed into dormancy.

The bottom line

Comes down to finance, at the end of the day,.

Sure, there have been some technology wash-outs, but not really all that many. There have been a whole bunch of companies who have spent more time on the upper end of the cost curve than they would have liked. But others, like Sapphire, bailed out of their avowed foundational focus on the fuels markets years before the first commercial was supposed to be built. And companies that are focusing on high-margin small markets are generally there more because of the need to produce cash flow  as opposed to a strategic focus, for all time, on niche markets and applications.

The financial world simply bailed on algae biofuels. Policy has something to do with that — or the lack of the stability thereof. But it has more to do with oil prices, really. Algae venturing went through it’s boom period exactly in the 2 year period when no one had an exact clue as to how the EPA would write the rules of the Renewable Fuel Standard — policy may be uncertain now, but it wasn’t any more sure-footed back then.

Really, it comes down to this. In the 2005 narrative, it was easy to look at prospective energy demand and rising prices and see a place for 4G fuels, like algae fuels. Now, the narrative has shifted, because the fracker is the swing producer, not the farmer. That’s why some thoughtful advanced technologists, seeing that carbon regimes are the way forward for environmentally-friendly fuels, are making overtures again to the environmental community. Which itself parted with biofuels over food vs fuel and land use disputes that, ultimately, were more about 1G technologies than 4G.

With realignment on carbon, may things are possible, But until then, it’s going to be a steady diet of REfocus and REposition for the wonder-workers of the algae industry, and a whole lot of omega-3s and nutrition to come.

When skyfill is the question, algae will be the answer once again.

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