Algae fuel has long been discussed as a viable biofuel alternative to gas and diesel, but until now no companies have been making it in bulk and selling it to regular car drivers. The month-long program is meant to test consumers’ responses to the alternative fuel, and the algae fuel will be sold at the same price as diesel at these locations. Algae fuel is generally currently more expensive than diesel.

The so-called Soladiesel uses a 20 percent blend of the algae oil, and can deliver a 20 percent reduction in carbon emissions, a 30 percent reduction in particulates, and a 10 percent reduction in THC.

After nine-years, an IPO and $125 million in venture funding, Solazyme finally broke into biofuels in a more commercial way this Summer by beginning construction on a biofuel plant in Brazil through a joint venture with Bunge. The plant is supposed to be operational in the fourth quarter of 2013, but Solazyme has been producing it on a smaller scale for awhile.

Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar. Then, using existing industrial equipment, it extracts the oil. Solazyme has long maintained that it has wanted to commercialize its fuel technology in the 2013 time frame, with a production cost target of $60 to $80 per barrel. Seems like it’s getting there.

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The first crops that the JV will focus on include castor and sweet sorghum, which can be grown on land not commonly used for food crops. The company says that through the use of genomics to boost yields and lower cost, castor seeds and sweet sorghum could be turned into viable feedstocks for biofuels. The crop protection and crop growth tools will also be created by genomics, and the company says these methods could be more sustainable than using pesticides and fertilizers to protect crops (these are also going to raise eyebrows with scientists concerned over genetically modified food).

Synthetic Genomics was founded in 2005 by genetics expert Craig Venter, who is the father of genetic sequencing. In spring 2010, his team successfully created the first entirely synthetic bacterial cell, which was controlled completely by a synthetic genome — that’s the first existence of artificial life, or the first life with parents that are a computer. That innovation could lead to any number of applications, and Venter says he thinks a completely synthetic algae cell could be the key to creating biofuels that can compete with oil.

While synthetic crops, or heavily genetically tweaked crops, will no doubt be controversial, they could also help pave the way for smarter management of resources — food, energy and water — for the 9 billion people who will inhabit the planet by 2050. There will already be 7 billion people as of next Monday, Oct. 31.

Venter said at a talk last week at the New America Foundation in Washington, D.C. that he thinks the world and food producers will start to design food in a totally different fashion. For example, he said that companies like Nestle and General Mills are trying to use what we did with the human genome to design foods targeted for humans that will be much more nutritious and efficient than foods like corn.

Here’s an explanation of Synthetic Genomic’s digital gene platform, by investor Steve Jurvetson at Green:Net 2010:

Image courtesy of Randy Read, and Swathi Sridharan.

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Venter and his research team, of course, in spring 2010, successfully created the first synthetic bacterial cell, which was controlled completely by a synthetic genome. Or as Venter explained it in his recent interview, as the first cell “to have a computer for a parent,” or “designed DNA on a living system.” Venter now says he has increasingly realized that a fully synthetic cell is the way to go to create competitive algae fuel. When it comes to tweaking naturally occurring algae cells, he says, “you’ll never get there with that. We need a fundamental change to how we approach all this.”

To explain the synthetic aspect further, a designer organism can be developed to only perform certain tasks, like converting sugar to ethanol, which would result in a very efficient process. Natural microbes, on the other hand, have other life priorities, like replication. But a synthetic organism can be created to just perform one function only.

Venter’s realization — that creating fully synthetic cells is the way to go — puts a bit of a damper on his company Synthetic Genomic’s partnership with oil giant Exxon, which was potentially a $600 million deal if Venter met certain milestones. Turns out Venter’s current deal with Exxon is to research naturally occurring algae cells only (not synthetic ones), but Venter hopes Exxon will come around to funding the research based on synthetic algae cells. Foreign Policy reporter Steve LeVine describes Venter’s work with Exxon as potentially “stalled.”

One of the dangers of using the synthetic algae cells is the fear that the cells could somehow be let loose on the outside world, which Venter admits could wreak havoc like turning the oceans into a sea of lipids. But Venter says that designing an organism that has self-destructive properties (it can’t live outside a lab, or it dies with a certain time period) could contain such an organism.

Algae oil company Solazyme, went public   this year, and plans to commercialize its algae fuel in the coming years. Solazyme tweaks existing efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar and then using existing industrial equipment extracts the oil. Solazyme’s stock is trading a bit under $10, way down from its IPO price of $18.

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The company isn’t producing all that much algae oil at scale yet, and also not generating very much revenue. Solazyme is focusing on niche markets right now like personal care products, pharmaceuticals and food. But starting in 2012, Solazyme plans to break ground on a plant to make algae oil for fuel and chemicals, and hopes to have that factory up and running in 2013.

Solazyme expects that its fuel and chemical factory will produce 550,000 metric tons of algae oil by the end of 2015. On a call with media and investors, the company said that now — two-plus months after the IPO — they are on track to hit all their milestones and timeline.

The good thing about the initial personal care market is that the margins on them are really high, though the market size is small. The opposite is true for the fuels markets; the margins are a lot smaller, but the market size is much higher (see graph below).

Solazyme’s stock fell 4.66 percent in trading today to $19.55. The company priced its stock at $18 per share when it went public two months ago.

Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar. Then, using existing industrial equipment, it extracts the oil. Solazyme is a leader in the algae fuel space, but competes with Sapphire Energy, Craig Venter’s Synthetic Genomics, and a handful of other companies looking to scale up algae oil production.

Despite that several next-generation biofuel companies have gone public in recent months, very few companies are producing biofuels on a scale to sell to the transportation market. Most, like Solazyme, are focusing on smaller markets in the meantime like nutroceuticals, biochemicals and specialty products.

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Overall it’s a good performance for a stock for a company manufacturing efficient algae strains to turn into biochemicals, cosmetics and ultimately fuel. Solazyme had estimated a price range of $15 to $17 per share just last week, but started trading at $20 this morning, an 11 percent premium over its $18 IPO price. Both next-gen biofuel makers Amyris and Gevo also fared well on the public markets when they debuted last year.

Solazyme’s IPO is an important step for the future of algae-based products and perhaps fuel, and shows investors that there is money to be made in these renewable products. However, Solazyme doesn’t plan on commercializing its algae fuel product for another couple of years down the road, and instead the company has been focusing on selling non-fuel products like cosmetics and biochemicals.

We’ll see if the share price can stay up long enough for the original investors to get some money after the 180-lock-up period.

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Friday morning, as Solazyme makes its debut on the Nasdaq, the company’s co-founders and investors are popping the champagne corks that the IPO was priced on the high end at $18 per share, and the company netted around $198 million. Now investors will clearly be hoping the stock stays at least as high as $18, and goes higher, between now and the 180-day lock-up period, which is the next time investors can get their money out. Wolfson and Dillon were able to offer 300,000 shares each in the offering, and at $18, that gives them $5.4 million each off the bat.

So who stands to gain and how much?

The Roda Group. Investment group The Roda Group, led by Roger Strauch and Dan Miller, owned 29.4 percent, or 13.93 million of Solazyme’s shares before the offering. At $18 per share, that’s worth $250.74 million. The Roda Group invested in Solazyme back in 2004 and led its Series A and B rounds, co-led the Series C round, and participated in the Series D round. The Roda Group also says Richard Branson invested in Solazyme’s Series D round through them.

The Co-Founders, Harrison Dillon and Jonathan Wolfson. Dillon and Wolfson managed to each keep 9.3 percent and 9.2 percent of the company, respectively, before the offering. They both sold 300,000 shares each in the offering, and retained 7.2 percent (4.16 million shares) and 7.0 percent (4.08 million) each. At $18 per share, Dillon’s shares are worth $74.95 million and Wolfson’s shares are worth $73.41 million.

Braemar Energy Ventures. Energy investors Braemar Energy Ventures owned 10.6 percent (or 5.02 million) of Solazyme’s shares before the offering, and it looks like they also owned another 5.4 percent (or 2.54 million shares) through “Solazyme Investments LLC.” (Not sure on this, so will update this if I know more). Those 5.02 million shares at $18 per share are worth $90.36 million. The 2.54 million shares are worth $45.72 million.

Lightspeed Venture Partners. Lightspeed owned 6 percent of Solazyme’s shares (or 2.82 million) before the offering, which is worth $50.76 million.

The Fiddler Group. The Fiddler Group owned 7.7 percent (or 3.65 million shares) of Solazyme’s shares before the offering, which is worth $65.66 million.

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Solazyme’s shares will start trading on the Nasdaq today under the symbol SZYM, and we’ll see how well the stock does on its debut. Next-gen biofuel IPOs from Amyris and Gevo fared well on the public markets when they debuted last year.

Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar. Then, using existing industrial equipment, it extracts the oil. Solazyme is a leader in the algae fuel space, but competes with Sapphire Energy, Craig Venter’s Synthetic Genomics, and a handful of other companies looking to scale up algae oil production.

While Solazyme isn’t currently selling its algae in large volumes as fuel, it is currently selling algae-based specialty biochemicals, cosmetics and food supplements. For example, Solazyme struck a deal with Dow Chemical to make an algae-based fluid for transformers.

Solazyme has raised at least $125 million throughout its eight years of existence, from investors including Chevron’s VC arm, Morgan Stanley , Richard Branson, and food and personal product giant Unilever . Unilever wants to use algae to replace palm oil, because the harvesting of palm oil has led to deforestation in Indonesia and Malaysia and has drawn the criticism of environmentalists.

But ultimately, Solazyme wants to scale up algae oil production to tackle the biofuel market. Solazyme is looking to commercialize its fuel technology in the 2013 time frame, with a production cost target of $60 to $80 per barrel. To get there, it will have to build a commercial-scale algae plant, which can cost over $100 million (one reason it needs cash from an IPO).

Solazyme updated its financials in its latest S-1, and for the first three months of 2011, ending March 31, reported $7.74 million in revenues. That’s slightly up from revenues of $5.76 million for thee first three months of 2010. At the same time, over the first three months of 2011, Solazyme lost $7.29 million, an increase from a net loss of $3.95 million for the period in 2010. For the full year of 2010, Solazyme lost $16.28 million on revenues of $37.97 million.

There is a total of 10.98 million shares of Solazyme common stock being offered, with Solazyme selling 10.38 million shares and 600,000 shares coming from selling stockholders. Solazyme is also offering the underwriters a 30-day option to purchase another 1.65 million shares.

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If Solazyme’s shares, which will go public under the symbol SZYM, sell at their mid-point, the company will be valued at close to $1 billion and will raise $160 million. The shares are expected to be traded the week of May 23 (yep, next week).

Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar and then using existing industrial equipment extracts the oil. Solazyme is a leader in the algae fuel space, but competes with Sapphire Energy, Craig Venter’s Synthetic Genomics, and a handful of other companies looking to scale up algae oil production.

While Solazyme isn’t currently selling its algae in large volumes as fuel, it has put together a business based on selling algae-based specialty biochemicals, cosmetics and food supplements. For example, Solazyme struck a deal with Dow Chemical to make an algae-based fluid for transformers.

Solazyme has raised at least $125 million throughout its eight years of existence, from investors including Chevron’s VC arm to Morgan Stanley to Richard Branson to food and personal product giant Unilever . Unilever wants to use algae to replace palm oil, because the harvesting of palm oil has led to deforestation in Indonesia and Malaysia and has drawn the criticism of environmentalists.

But ultimately, Solazyme wants to scale up algae oil production to tackle the biofuel market; hence, why a company like Chevron is interested. Solazyme is looking to commercialize its fuel technology in the 2013 time frame, with a production cost target of $60 to $80 per barrel. To get there, it will have to build a commercial-scale algae plant, which can cost over $100 million (one reason it needs cash from an IPO).

Solazyme updated its financials in its latest S-1 as well, and for the first three months of 2011, ending March 31, reported $7.74 million in revenues. That’s slightly up from revenues of $5.76 million for thee first three months of 2010. At the same time, over the first three months of 2011, Solazyme lost $7.29 million, an increase from a net loss of $3.95 million for the period in 2010. For the full year of 2010, Solazyme lost $16.28 million on revenues of $37.97 million.

Both next-gen biofuel makers Amyris and Gevo had relatively successful IPOs, despite neither company making biofuels in large-scale volumes, and neither company being profitable.

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