November 2, 2011

Algae industry is bubbling up

The latest clean-tech energy contender pushes toward commercial production, even as federal money is drying up.

The ingredient list for products ranging from jet fuel to dietary supplements may soon get an unusual addition: algae.

Entrepreneurs who hope to profit from algae-growing ventures in Florida, Iowa, Hawaii and elsewhere described a broad array of commercialization plans Tuesday at an industry summit in Minneapolis.

"We are on the verge of breaking out on a global scale, not just here in the U.S.," said Mark Allen, a vice president for Accelergy Corp., a Houston-based synthetic fuels company and president of the Algal Biomass Organization, which hosted the summit.

Algae executives said the microorganism, which feeds on carbon, is being grown in ponds in New Mexico, Iowa and Florida, and brewed in bioreactors in Hawaii and elsewhere. The industry's widely varied technologies can produce jet fuel, ethanol, biodiesel, cosmetics ingredients, animal and fish feeds and food supplements like healthful Omega-3 oils, executives said.

Some of the biggest projects underway have gotten federal grants and loan subsidies, including Solazyme, a California company that raised nearly $200 million in an initial stock offering and whose biofuel has been successfully tested by the U.S. Navy. The company's president, Harrison Dillon, said it is ready to start building factories to produce a range of products from food oils to diesel fuel.

Another federally aided company, Sapphire Energy, is digging ponds for a $135 million algae-for-fuel project in New Mexico. Tom Zenk, the company's vice president of corporate affairs, said the nation's expansion into algae-based fuels will require "massive amounts of capital to be raised" and that the private sector can't take on all of the risk.

But just as the algae industry prepares to bloom, the federal pipeline of subsidies, tax credits and loan guarantees that helped the wind, solar and other clean-tech industries may soon dry up.

"The prospects for the short term do not look good," said Gary Klein, an attorney for the federal affairs practice of DLA Piper, a Baltimore-based law firm whose clients include energy development firms.

He blamed the uncertainty on the federal budget crisis and political fallout from the collapse of government-backed solar panel maker Solyndra. Even the U.S. military's procurement of biofuels on national security grounds "is under threat," Klein said.

The bankruptcy filing last month by Solyndra, which received a $535 million federal loan guarantee in 2009, has provoked congressional hearings into the Obama administration's support for the company and is likely to be an issue in the 2012 presidential campaign.

The emerging algae industry also faces a tough time raising private capital as investors become less willing to plunge into new, unproven technologies.

"There is no venture capitalist betting on hope," said Todd Taylor, an attorney for Fredrikson & Byron in Minneapolis who advises algae firms and other clean-tech companies.

Michael Martin, an associate with Braemar Energy Ventures, a New York-based venture capital firm, said investors still are willing to put money into algae technology, but a company "has to be able to stand on its own" without counting on federal assistance.

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