Tag Archives: Algenol

Algenol Cancels Plans for $500 Million Algae-to-Ethanol Facility

What They Said

Algae-to-ethanol company Algenol recently announced that it was cancelling plans to build a $500 million production facility in Florida. The company blamed the Florida governor for the decision to cancel the facility, citing a bill the governor signed to repeal the required 10% ethanol blend in gasoline.

What We Think

Algenol works with algae that consume CO2 and sunlight, and within the cell produce ethanol, which the algae excrete. The technology was invented in 1984, and the company previously expected to build an integrated demonstration facility in Florida by 2011, though that timeline was pushed back to 2013. Now, the company is looking outside of Florida for its first commercial facility, a $500 million facility that would produce 15 MGY to 20 MGY of ethanol. Algenol blamed the governor’s recent bill to repeal Florida’s E10 mandate as the cause for this decision, even though federal mandates (the RFS2) govern U.S. ethanol blending. The company claims that its ethanol is over $0.50 per gallon cheaper than gasoline, but still the company needs a required market with long-term E10 blending.

Struggling biofuel companies are eager to blame anybody but themselves for their plant closings and poor performance, whether politicians, oil companies, or investors, but the curious part about Algenol’s blame game is the fact that it can easily ship ethanol to other states, assuming the market in Florida is not accessible. However, struggling algae companies need to blame someone, and blame they will. The real cause behind Algenol cancelling plans for a commercial facility is within the company, and not the Florida ethanol market. Algenol’s capital costs are very high, and it is likely very difficult for the company to raise funding; additionally, it may have technical hurdles with its system and organism that it has to overcome. We are skeptical of Algenol’s ability to raise the necessary capital to move forward with its first production facility. In this space, a company blaming the government is an all-too-common red flag, indicating a doomed company looking to push blame away from themselves, and clients should view such proclamations with caution.

Solazyme files for IPO

As we mentioned in an earlier post, Solazyme recently filed for an initial public offering (IPO) targeting $100 million. This wasn’t a surprise: Just as we had seen Amyris form multiple strong partnerships in the months leading up to its IPO (see the July 6, 2010 LRBJ*), Solazyme’s been revving up its own stable of new partnerships. It’s been forging partnerships in fuels and chemicals more intensely in recent months than it has throughout its lifetime. Since September, the company has inked deals with Bunge, Unilever, and Roquette (see the September 14, 2010 LRBJ* and the November 9, 2010 LRBJ*) on top of existing relationships with companies like Chevron, Honeywell, Abengoa, and Virgin (see the August 17, 2010 LRBJ*), and a joint development agreement with Dow announced last week.

Some highlights from the company’s S-1 include the company’s claims that it has already achieved “attractive margins when utilizing partner and contract manufacturing for the nutrition and skin and personal care markets,” and that it believes it can undercut fuels “when we commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock,” citing oils at a cost below $1,000 per metric ton, $3.44 per gallon, or $0.91 per liter.

Solazyme also notes that its Roquette JV will fund an approximately 50,000 metric-ton-per-year facility for nutrition products, which would be the first serious challenge to DSM-owned Martek (see the January 13, 2011 LRMCJ*). The company also mentioned a deal with Colombia’s national oil company (NOC), Ecopetrol, and a Brazilian letter of intent to form a JV that would add capacity of 400,000 metric tons of oil per year – nearly a thousandfold increase over the 455 metric tons the company produced in 2010.

But for all its strengths, Solazyme still lost $16 million last year on $39 million in revenue. By comparison, Amyris brought in $65 million in 2009, the year before its IPO.

While there are always reasons to be cautious when a loss-making company files for an IPO, one of the biggest challenges Solazyme will face is the public market’s mistaken association of its technology with older technologies like corn ethanol or dodgy algae developers. Solazyme is indeed an algae company. But it is wholly different from certain competitors, whose reliance on hype rather than commercially viable technologies poison the pond (pun intended) for legitimate players like Solazyme, Phycal, and Algenol (see the November 13, 2010 LRBJ*, the August 17, 2010 LRBJ*, and the March 10, 2009 LRBJ*). Gevo and Amyris represent better comparisons for Solazyme, and both had relatively successful IPOs (see the October 12, 2010 LRBJ* and the February 10, 2011 LRMCJ*). 

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