But in a detailed Bloomberg article on Chevron’s move away from biofuels, Venter and Synthetic Genomics have finally confirmed that the Exxon-funded research didn’t produce the desired results and was subsequently down graded. The article says that in late 2011 an algae strain that proved promising in the testing greenhouse, didn’t hit its performance milestones in an Exxon pond in Texas.

As a result, Bloomberg says that Exxon changed the contract to focus on long term research instead of commercial production, and Synthetic Genomics was forced to lay off more than half its staff that were working on biofuel development. Venter also clarified back in late 2011, that the Exxon deal was to research naturally occurring algae cells only (not synthetic ones), and Venter hoped that Exxon would come around to funding the research based on synthetic algae cells.

Venter says that biofuels made from algae that will be able to scale, and compete with oil, will have to be synthesized and will not come from nature. In the Spring of 2010, Venter and his team successfully created the first synthetic bacterial cell, which was controlled completely by a synthetic genome. Alas, perhaps algae fuel won’t be the first application for that ground breaking research.

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The players

One of the companies that’s the farthest along is Solazyme, a South San Francisco-based company that went public in the spring of 2011. Solazyme was one of the first firms to focus on the alternative chemicals and personal care markets, developing a small but steady revenue stream as it braced itself for the difficulty of churning out its algae oil at a scale and cost that can compete with oil for transportation.

But Solazyme is now at the brink of ramping up its algae oil for fuel, too. This week the company said that its Brazilian joint venture with food processing giant Bunge — called Solazyme Bunge Produtos Renováveis — has received approval for a $120 million loan from the Brazilian Development Bank to build out its first commercial-scale algae fuel factory in Brazil. The factory is already under construction (it started in the summer of 2012) next to Bunge’s sugarcane mill in São Paulo (it uses sugar for a feedstock). Solazyme hopes it will be ready to go by the fourth quarter of 2013. Initially it will produce 100,000 metric tons per year, but eventually by 2016 it’s supposed to make 300,000 metric tons annually.

Solazyme also plans to reach commercial scale of its algae fuel in the U.S. soon, using a factory in Clinton, Iowa owned by agriculture giant ADM. That plant is supposed to make 20,000 metric tons of algae oil per year in early 2014, and eventually 100,000 metric tons per year. It also has its own smaller scale development factory in Peoria, Illinois.

Sapphire Energy is another company that is looking to cross through the so-called Valley of Death from low volume production to commercial scale that can one day compete with oil. The company has a 2,200-acre algae growing farm in Columbus, New Mexico, which has 70 ponds, each the size of a football field, as well as a refinery on site. The New Mexico refinery reportedly started producing oil in low volumes last summer and by 2014 is supposed to be able to make 1.5 million gallons of algae crude per year, and 10,000 barrels a day by 2018.

Sapphire and Solazyme are attacking the algae oil industry with different approaches. Solazyme grows its algae in closed fermentation tanks, while Sapphire is growing it in the open air on large plots of land. Open air ponds could theoretically be cheaper, but they face the problem of making sure they don’t get contaminated and disturbed by outside elements.

Another company working on algae fuel is Synthetic Genomics, which is the brainchild of genomics guru Craig Venter. Venter beat the U.S. government at being the first to sequence the human genome, and also led his team in recent years to be the first to make the world’s first synthetic bacterial cell, called the first artificial life form by many. The researchers built a synthetic chromosome and inserted it into a living bacterial cell, where it took over the cell and became an entirely new life form.

Synthetic Genomics was able to score a massive, potentially $600 million, development deal with Exxon. Last spring, Synthetic Genomics bought a 81 acre site in the Imperial Valley, near the Salton Sea, and it plans to scale up and test its algae strains there with 42 open ponds.

The costs

Scaling up all these new factories and farms take a colossal amount of money. But they’re needed because the algae oil needs to be produced at a huge scale to get it cheap enough to compete with oil.

The costs no doubt take a toll on these pioneers. Solazyme’s net losses are growing, and the company lost $58.52 million for the nine months ended September 2012, up from a $38.32 million net loss for the same time the year prior. The company will not likely be profitable for years, and it’s helping fund its production deal with ADM with equity. This week Solazyme said that it intends to sell $100 million worth of notes to help it build its projects.

Sapphire Energy raised at least $300 million from venture capitalists and investors like Cascade Investment, which is owned by Bill Gates. Good thing Sapphire got that money in the bank, because few venture capitalists these days are willing to put in hundreds of millions of dollars into such infrastructure for clean power projects. Sapphire also got $50 million in stimulus funding and a $54.4 million federal loan guarantee.

Synthetic Genomics has its potentially $600 million development deal with Exxon, though I’m not sure the status of that currently. Venter has said that biofuels made from algae that will be able to scale, and compete with oil, will have to be synthesized and will not come from nature. The Exxon deal was originally 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.

Who knows if algae fuel will ever get there — if Venter is right, it’ll have to be a completey new type of synthetic super microbe that delivers algae oil as efficiently as possible. But 2013 is a year in which these three algae fuel players look to scale, and will spend a lot of money to get 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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Report author Andrew Soare interviewed more than 300 executives for the report, and finds that startups in the field have started to distinguish themselves as winners or losers in terms of larger rounds of investment and corporate partnerships. At the same time, startups are changing their game plans to better fit the difficult market, shifting focus to specialty chemicals and postponing plans for mass-producing biofuels that will have to compete against oil on price.

So who’s on top? As with its report last year on the biofuel sector, Lux pulls together data on revenue per employee, patents, performance metrics, production capacity and the like to place contenders in terms of maturity and potential. Winners in both categories included net-generation biofuel stock market bellwether Amyris, cellulosic waste-to-isobutanol startup Gevo, algae-to-fuel startup Solazyme, long-time cellulosic ethanol developers Mascoma and Poet, and two startups making succinic acid and butanol — U.S.-Canadian firm BioAmber (formerly DNP Green Technology) and China’s Cathay Biotechnologies.

As for low-ranking companies, Lux didn’t pull punches, putting some dozen little-known names in its immature, unpromising quadrant, indicating the judgment that they’re “highly risky as investment, licensing, partnership, or merger and acquisition target(s).” Those included two “caution” warnings for U.K.-based ethanol producer TMO Renewables and French biocatalyst developer Proteus.

Many of the top-ranking startups have deep partnerships with established players in the field. Cellulosic ethanol maker Mascoma just got $50 million from oil refining giant Valero to build a plant in Michigan, along with an agreement to buy the fuel from it. Amyris has backing from French oil giant Total and P&G, Gevo has letters of intent from Total subsidiary Total Petrochemicals and United Air Lines, and Solazyme has investment from Chevron and a partnership with European food and consumer products giant Unilever.

They’re not alone, of course. Craig Venter’s Synthetic Genomics got $300 million from ExxonMobil for algae biofuel research, LS9 has backing from Chevron and products giant Procter & Gamble, and Codexis has pharmaceutical partnerships and a piece of Shell’s massive Brazilian biofuel partnership.

The Lux report breaks down startups according to technologies: fermentation, gasification, synthetic biology, chemical processes, crop enhancement, and algae processes. Some headline-level conclusions include:

• Fermentation’s digestion is improving. Companies like TetraVitae and Genomatica are engineering organisms that can eat more and more feedstocks and pump out more and more valuable chemicals, like succinic acid and butanol. Companies emerging from the biotechnology sector like Amyris and Verdezyne are also producing interesting new chemicals.
• Gasification is good for waste. It looks like heat beats bugs for converting trash into useful hydrocarbons. Even though that uses a lot more energy, it could be worth its while if startups can squeeze efficiencies out of the process. And remember that trash doesn’t cost anything — in fact, processors can usually get paid by the ton for taking it off the hands of government and private trash management authorities.
• Algae hasn’t proven anything yet. Lux says that only a handful of algae-based biofuel startups will survive — the report singles out Solazyme and Algenol — amidst a host of competitors that haven’t solved the key problems of harvesting and processing algae in a cost-effective manner.

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Image courtesy of Argonne National Laboratory via Creative Commons license.

U.S. Patent #7,794,969, AKA “Methods and Compositions for the Recombinant Biosynthesis of n-Alkanes,” covers the Cambridge, Mass.-based startup’s process to engineer “photosynthetic microorganisms for the direct synthesis of diesel molecules.” While other biofuel startups are using genetically engineered organisms to convert  sugar into drop-in fuels (see Amyris and Solazyme for examples), Joule says its organisms need only sunlight, water and carbon dioxide — a fact that’s key to its low-cost claims.

Joule’s “helioculture” systems — glass containers of algae and water laid out in a manner similar to solar panels, with pipes to take the resulting biofuel to storage tanks — are meant to be modular and scalable, CEO Bill Sims told us last year. Unlike many other algae biofuel efforts that rely on harvesting and processing the algae to make fuel or other products, Joule’s microorganisms keep pumping out fuel in a continuous process. Craig Venter’s startup Synthetic Genomics is working on engineering algae to do someting similar, and has a $300 million research project underway with oil giant ExxonMobil.

Joule’s pilot project in Leander, Texas is now producing ethanol, rather than diesel, and can produce up to 10,000 gallons per acre per year, though Joule said it’s shooting for 15,000 gallons per acre. As for its diesel product, Joule plans to start pilot production by year’s end and open a commercial plant in 2012.

Joule raised a $30 million series B round in April, adding to the “substantially less than $50 million” CEO Bill Sims said the company had raised as of July 2009, when it came out of stealth. The company was founded in 2007 at the Flagship Venture Labs, an arm of Cambridge-based Flagship Ventures.

Joule’s claims have been greeted with some skepticism by biofuel industry analysts, no doubt making the new patent — along with another on “Hyperphotosynthetic Organisms” approved on August 31, and Joule’s numerous other patent filings — interesting nighttime reading for its biofuel competitors.

Joule’s claim of being able to produce 15,000 gallons of diesel per acre is particularly aggressive. Henrik Scheller, director of cell wall biosynthesis at Lawrence Berkeley National Laboratory’s Joint BioEnergy Institute, has said that algae growing in sunlight can reasonably produce about 4,385 gallons of fuel per acre per year, and that’s by harvesting and processing the algae itself. Joule declined our interview request on Tuesday — we’re curious to hear how the company addresses questions about its high-volume, low-cost claims.

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Codexis CEO Alan Shaw spoke to us Wednesday, and while he couldn’t say just how the deal would impact the company’s short-term financial picture, he did say that Codexis would be working on converting 100 percent of the sugarcane plant — the one-third that’s sugar, and the rest of the cellulosic material that’s left over — into biodiesel through a direct fermentation process. Just what share of the overall venture’s production might come from Codexis technology in the coming years he couldn’t specify.

Still, Codexis is “already significantly engaged” in the Brazilian project (an MOU was signed in February), and expects to have its technology working there next year, Shaw said.  While Shell has turned over its 16-pecent stake in the Redwood City, Calif.-based company to the yet-to-be-named venture, it and other investors (Chevron, Pfizer, General Electric) are holding onto their Codexis stock, he added.

“This joint venture is very much about Shell’s future,” Shaw said. Indeed, Shell says it will invest $2 billion in the project, and will retain rights to buy back Cosan’s half in ten years. The new joint venture is expected to add some 2 billion liters (528 million gallons) of annual production capacity to Cosan’s already existing 18 billion liters (4.75 billion gallons) per year in ethanol sales, and Shell and Cosan together have 4,500 gas stations to sell the fuel.

Shell has had a 3-year partnership with Codexis, and accounted for 76 percent of its revenues in 2009. Codexis was one of the first biofuel startups to link its fortunes so publicly to Big Oil, but it has since been followed by others. IPO candidate Amyris has a partnership with French oil giant Total; Chevron has invested in LS9 and Solazyme as well as in Codexis; and Exxon is in a $600 million partnership with Craig Venter’s Synthetic Genomics to genetically engineer algae for biofuel. Other biofuel startups are inking deals with agriculture giants: Gevo, the Khosla Ventures-backed cellulosic ethanol company that filed for an IPO this month, has a partnership with Cargill.

Shaw said he believes Codexis is ahead of its competitors in getting its technology into the massive refining, transport and distribution networks needed to bring biofuels to market at a scale that matters. “This joint venture is real, it’s happening today, one of the world’s largest oil companies has put its weight behind it,” he said.

Shell also turned over its stake in Canadian biofuel company Iogen Energy, which will also be part of the new joint venture. Codexis is working with that company to turn wheat straw into ethanol, in what Shaw dubbed a “North American solution” to match Brazil’s interest in cellulosic sugarcane waste for fuel.

Beyond its partnerships with Pfizer and other pharmaceutical companies, other projects underway for Codexis include carbon capture, and Shaw said the company expected to announce a “big brother partner” in that field some time this year.

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The greenhouse facility is the first step in figuring out if Synthetic Genomic’s algae fuel can move beyond the lab environment and be produced economically at a larger scale. The next step will be an outdoor facility that the partners will build by 2011.

Given startups and large partners often times announce these types of deals to much fanfare and media attention, only to let the deals disappear into oblivion, it’s interesting to hear that there’s been some progress made on the collaboration. Over the past year, Synthetic Genomics says it has identified and isolated a large number of algae strain candidates, has been researching the best conditions under which they will grow, has started designing productive reactors, and has been closely tracking the greenhouse gas emissions, land use and water use of the different options.

Synthetic Genomics recently had a world-changing breakthrough. For those of you that don’t read the news, Venter officially became God in May when his team successfully created the first synthetic bacterial cell — in other words, the first artificial life form. A synthetic life form could be uniquely suited to help fight climate change and aid in uncovering new energy sources because a designer organism could be developed to only perform certain tasks, like converting sugar to ethanol, which would result in a very efficient process. Natural microbes have other life priorities like, say, replication, but a synthetic organism can be created to perform one function only.

Now producing these efficient algae strains economically at scale is the real challenge. As Venter has said, if algae fuel companies can’t generate billions of gallons of fuel, then they are “just playing” and “wasting investors money.” That’s where Exxon comes in: Oil companies will likely be the key to cracking the algae fuel code.

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Cleantech Financing Trends 2010 & Beyond

Exxon on Efficiency Trends: Oil giant ExxonMobil issued its annual long-term world energy outlook today, forecasting that efficiency gains will accelerate between 2005 and 2030 compared to historial trends, with energy-per-GDP falling at an average global rate of 1.5 per cent a year. — FT Energy Source

Divisive Draft Text Leaked at COP15: A draft text proposed by the Danish host government of the UN climate talks and leaked to the UK Guardian “sees everything coming under a single new deal, whereas an alternative text from developing countries wants an extension to the Kyoto Protocol.” Campaigners say the draft would disadvantage poorer nations. — BBC News

Trony Solar Sets Share Price for IPO This Week: Chinese amorphous silicon solar panel maker Trony Solar is expected to go public on the New York Stock Exchange this week, marking the second solar IPO in over a year. Trony has priced its shares at between $9 and $11. — Greentech Media

Paper Battery Put to the Test: “Ordinary office paper coated with an inky layer of carbon nanotubes or nanowires can make a lightweight, flexible and highly conductive battery or superconductor,” according to new research out of Stanford University. — Greenwire via NYT

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