January 16, 2012

Aurora Algae: Making it happen in the Never-Never

How did Aurora Algae get so far down the road, so fast?

Word has been sneaking back to the United States from Australia that Aurora Algae is well into a $100 million capital raise from a combination of existing and new investors, and is aiming at an IPO later in the year to fund its growth from a 6-acre demonstration unit to a small commercial facility of 250 acres, and then potentially to thousands of acres in its next iteration. All as soon as this half of the 2010s.

All of the above, in a town called Karratha, in the back western reaches of the land known, in Australian parlance, as the Never-Never.

Now that’s a company on the move.

Especially given the naysaying that generally surrounds industrial biotech companies, and most especially companies using algae as a platform. And supremely especially those taking the open pond cultivation route.

We get it, we’ve heard the algae naysayer’s rap:

Algae and the Never-Never

It won’t happen until the 2020s if ever.
It will use too much land, or too many inputs, forever.

The CO2 will never be affordable, The ponds will crash.
No VC will ever put up enough cash.

There will never be enough available lipids,
You’ll never affordably get the algae out of all that liquid

You’ll never make it cheaply enough,
you’ll never be able to move all that stuff,

It costs too much to move the water,
You couldn’t do this with Harry Potter.

To all of the above, Aurora Algae is something of an embarrassment. What temerity, to tackle and solve all those problems?

Aurora’s origins

It weren’t always so. Aurora Algae wasn’t actually started as a company that would eventually settle on producing algae as a feedstock for nutrition first, feed later, and fuels down the line.

The company was founded as Aurora Biofuels – solely to do biofuels. As time went on, and the company came closer to realizing its performance targets, it discovered that its algae could sell at a much higher price point into other markets.

Before it was focused on biofuels, it was focused on more purely scientific goals. The original science team was studying how genes get turned on and off, and thereby studying the science of strain improvement. It aimed at developing a system whereby the team could ask specific questions – if, over expressed, would one specific gene increase the production of C16 molecules.

Back in the day, no algal systems had this capability. Strain optimization was based on random improvement. A lot of algal work was based on discovery – scoop out a bucket of water, and look for high-performing strains.

Now, strain optimization is different from genetic modification. In GMO, DNA from a foreign organism is introduced. For example, so tomatoes could better withstand freezing, some DNA from arctic fish were introduced, DNA that had never existed in a tomato. DNA that had no idea what we were trying to accomplish.

Strain optimization is quite different. Inside the genetic structure of algae, there are zillions of cells and thousands of genes, some switched on, many off. In switching on genes, the phycologist is discovering something that, eventually (albeit, in a Monkey typing Shakespeare time-scale) the organism would switch on by itself. It is a form of accelerating evolution.

The company pivots, accelerates

Now, what caused Aurora to accelerate? It was a commercial form of accelerated evolution. Which is to say, a pair of happy accidents. One, the discovery of some high-value markets that would open to the company, and make even a 250-acre demonstration plant financially profitable.

Second, the discovery that Western Australia – specifically, the town of Karratha, had some existing ponds, stable temperatures, plenty of seawater and aggregated, affordable CO2, and the strain of algae that Aurora uses, nannocholoropsis, was native to Australia. Massively simplifying the path from pilot to scale.

Muradel is among the other companies that has been exploring those same opportunities that Karratha offers, as that company embarks on its own capital-raising activities to head for demonstration scale.

Australians are pretty excited. The country is typically understood as, basically, “a dig it up and ship it out” country when it comes to commodities. To cultivate its own material for its own supplement and nutrition industry — and Australian omega 3 intake is very high. Well, they get it.

But its far from an omega 3 niche venture that gets to $80M or so in sales, or maybe 10X of that, before stalling. Not that it’s a bad business, at all. The current demand is set to double, or more, by 2050. Probably more – because companies are just beginning to explore the full value that could be realized from these fatty acids, in a market where the material is far more affordable than today.

The product line-up

The products? There are three. The omega 3 fatty acids (EPA). The fuel component – similar to a palm based biodiesel. Protein for fish (and later, cattle).

So, fuels? Once the company has proven itself at the 250-acre scale, well, you can head about a 100 miles east from Karratha before you run into just about anything. About 2,000 miles before you run into anything approaching a city-sized barrier to growth. Ultimately, the at-scale systems are just repetitions of the 250-acre small commercial executions, there is really not much extra engineering to do beyond site prep. And there’s not much all that different from the 6-acre demonstration, to the 250-acre scale, either.

At full commercial scale, Aurora plans to participate in the same markets that, day, palm-based biodiesel can participate in. For example, the 20 billion gallons of advanced biofuels required by the US Renewable Fuel Standard. At 3000 gallons per acre, that would require 6.6 million acres of algal biofuels.

The opportunity for scale.

The Great Sandy Desert, which extends east of Karratha, has 70 million acres. The adjacent Tanami Desert has another 45 million acres. Heading south, the Great Victoria Desert has another 86 million acres. Scads of CO2 from mining interests. Sunlight a-go-go. Seawater, well, you can hardly measure it all. So, you get the idea.

It’s an outpost where just 20-30 people are at work at the demonstration facility – a collection of pond operators, field engineers, chemists and biologists, electricians, pipe fitters, maintenance people and groundskeepers. But as they say, an output of interest.

It’s the Never-Never becoming the Maybe-Mightbe, and quite possibly a Success-at-Scale. Exciting to see.

Original article available here.

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