The factory, Solazyme’s first large one, is being built next to Bunge’s sugarcane factory in the Moema region of Sao Paulo, Brazil, and is supposed to be operational in the fourth quarter of 2013. Bunge is providing the sugar stock and Solazyme is utilizing its sugar to oil production technology. The plant will produce 30 million gallons of Solazyme’s algae-based oil a year, and the oil will be used in both the specialty chemical and fuel markets — applications like a sustainable alternative to palm oil for use in various products.

Solazyme went public last year, at $18 per share, and raised $198 million in the process. Today Solazyme  is trading at $13.67, and generated $13.56 million in revenues for the most recent quarter, up from $7.74 million for the same quarter the year prior. At the same time the company lost $16.78 million, a greater loss than the $7.29 million loss from the quarter the year earlier. 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.

The fuel market has been daunting to companies like Solazyme, because to compete in the fuel market the biofuel product needs to be able to be competitive with oil on cost and scale. Most biofuel makers just aren’t there yet and haven’t been able to achieve these economies of scale. As GigaOM Pro analyst Adam Lesser pointed out (subscription required), Amyris recently decided to scale back its biofuels production in favor of manufacturing the specialty (and higher margin) chemical squalene.

The specialty chemical market is a smaller market than fuels, but specialty chemicals can be sold for a higher price. Specialty chemicals are things like polymers that make up plastics or substrates for pharmaceutical manufacturing. OPX Biotechnologies is an example of a startup focused on bio-chemicals like bio-acrylic.

But now Solazyme is tackling biofuels head-on, and mitigating some of this risk through its joint venture. Solazyme has long maintained that it 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 almost there.

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When thinking about the rising price of oil, folks in cleantech tend to think in terms of transportation fuels and what can be done to replace them with renewable and clean sources of energy. And with good analysis from the likes of UCSD’s Tom Murphy showing that in 2004 oil production slowed and failed to increase much despite prices tripling, finding alternative fuels is key. But what most people don’t realize is that a chunk of the crude oil that goes into an oil refinery doesn’t end up anywhere near a car’s fuel tank. It ends up making chemicals.

A higher margin product

In 2011, the global market for petrochemicals was worth over $3 trillion, approximately the size of the entire U.S. government’s budget, and the feedstock for producing those chemicals is petroleum. About half of that market is commodity chemicals that are low margin, but the other half is higher margin specialty chemicals like polymers that comprise plastics or substrates for pharmaceutical manufacturing.

The biofuels industry is working on producing transportation fuels through a process whereby a carbon feedstock like woodchips or sawgrass is fed to microbes to produce oil. But most of the biofuels companies that IPO’ed last year have been crushed in the market, and Amyris recently decided to scale back its biofuels production in favor of, what else, but manufacturing the specialty (and higher margin) chemical squalene.

So as some biofuels companies try to pivot toward specialty chemicals, which are lower volume and smaller market but with better margins, it’s worth taking a look at the potential to use microbes to manufacture chemicals from a feedstock other than oil.

Finding the right bio-chemical

I recently caught up with Charles Eggert, the CEO of Boulder, CO based OPX Biotechnologies, a bio-chemical startup that has raised $65 million from a number of VCs including energy focused Altira Group and cleantech friendly Mohr Davidow. OPX Bio is targeting the $10 billion global market for petro-acrylic, an ingredient in everything from paint to diapers, by generating the first biologically produced acrylic, so called “bio-acrylic.”

Eggert is unsurprisingly bullish on the bio-chemical market. He points out that while less of the oil going into a refinery comes out a petrochemical than comes out a fuel, petrochemicals have much greater value in the market. Specialty chemicals have disproportionate margins and value, which is what makes them attractive. He also takes some solace in the fact that the massive scaling issues that have hampered biofuels are somewhat less of an issue for lower volume specialty chemicals and that many common chemicals from pharmaceuticals to amino acids are already produced biologically.

On the cleantech end, biochemicals are renewable, presuming you can access a widely available feedstock whose growth doesn’t harm the environment and doesn’t compete with the food supply as corn based ethanol does. But more importantly the process of using microbes to produce biochemicals doesn’t require heat and pressure, which are both needed in petrochemical processing. The bacteria that OPX uses operates near room temperature.

Eggert says that producing bio-acrylic results in 75 percent less greenhouse gas emissions versus producing petro-acrylic. Additionally, large companies like Procter and Gamble have ambitious pledges, like targeting the replacement of 25 percent of all petroleum based materials with renewable materials by 2020. P&G is a significant buyer and seller of specialty chemicals for everything from detergents to cosmetics, and the option to buy greener bio based chemicals could be an attractive option.

For a feedstock, OPX is currently using sugar, either from corn or Brazilian sugar cane. But ultimately the industry will need a non-food based sugar, often referred to as cellulosic sugar, which is derived from biomass materials like switch grass or energy cane. Multiple companies, from BP to DuPont, are working on building large scale plants that can derive sugar from biomass sources.

Eggert told me that at commercial scale, making bio-acrylic is cost competitive with petro-acrylic. OPX will need to build a commercial scale plant and prove that it can get the same yield it’s produced at smaller scale, the critical scaling hurdle that every biochemical or biofuel company faces. It also has a joint development agreement with Dow Chemical, the largest U.S. producer of petroleum based acrylic, which Eggert reports is seeing demand from its customers for renewable biochemicals.

The building of a final production plant can often run a couple of hundred million dollars. “It’s not cheap,” says Eggert. “Which is why you need to make sure your process, your microbe, your engineering design are as efficient as they can possibly be.” And for the benefit of the biochemicals industry, let’s hope that the scaling goes faster and more smoothly than it’s gone for biofuels.

Images courtesy of OPX Biotechnologies and Amyris.

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Steven Chu, Harry Reid

It’s been hard to avoid the elephant in the room at the fourth annual National Clean Energy Summit in Las Vegas on Tuesday. While the clean energy industry was eager to talk about the latest cleantech breakthroughs and clean power projects, the reality is that the clean energy industry is facing a very difficult near-term future in terms of funding, with the stimulus package dollars coming to an end, potential budget cuts looming for the Department of Energy, some venture capitalists going cold on cleantech, and no clear major carbon policies on the horizon in the U.S.

Both Vice President Joe Biden and Energy Secretary Steven Chu gave a nod to an upcoming crossroads in their keynotes at the event. Both leaders sought to make the case about what would happen if the DOE had significant budget cuts, highlighting the importance of programs like its ARPA-E grant project, and the loan guarantee program. Biden noted that the ARPA-E program has recently seen five of its grant companies receive follow-on private capital, including Phononic Devices, Primus Power, OPX Biotechnologies, Transphorm and an energy storage project at Stanford.

Joe Biden, Harry Reid

Chu said that despite the recession and potential budget cuts, it is important to focus on keeping the momentum of the clean energy industry going, particularly in times of stress. Look at the Civil War, one of America’s darkest hours, which produced landmarks like the Land Grant act that increased agricultural productivity, and the transcontinental railroad, which led to nationwide commerce said Chu. We can do the same things for the clean energy industry, even when there are these macroeconomic stresses, noted Chu.

Biden put it as: “Our nation has a simple choice. A choice about what country we are going to be. A country that rises to the occasion, overcomes the odds, and leads the world. Or are we going to be a follower nation?” Later on in his speech he added, “We are at an inflection point.”

Chu also focused on three things that the U.S. can do to keep the momentum going for the clean power industry:

1. We need to invest in basic research in energy and education. This research will bring down the cost of clean power and help us remain competitive.
2. We need to enact a clean energy standard as a pull for the deployment of clean power projects. That wouldn’t use tax dollars and wouldn’t pick winners, noted Chu.
3. We need a Clean Energy development agency. This could support action plans to support clean energy plans.

Execs in the clean power industry attending the event that I talked to seemed inspired by the leaders’ talks.

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The company made news recently by announcing a partnership with chemical giant Dow Chemical to turn sugar into a bio acrylic acid — the petroleum-based version of acrylic acid is used in plastics, paint products and diapers. When I interviewed the company a couple years ago, they explained the company’s innovation as a speedy full genome search and gene modification technology platform that is 1,000 to 5,000 times faster than conventional methods.

In conjunction with the Department of Energy’s ARPA-E program, which gives small grants to high-risk early-stage companies, OPX is also working on engineering a microorganism that makes biodiesel from hydrogen and carbon dioxide. The DOE gave OPX $6 million for this research. Previous investors in OPX include Mohr Davidow Ventures.

A few other next-gen biofuel companies have been funded in recent months including CoolPlanetBiofuels, which attracted investment from Google and a consortium including GE, NRG Energy and ConocoPhillips. Another one is Enerkem, which gasifies various forms of waste — everything from old telephone poles to mixed municipal garbage — and then turns that syngas into various fuels including methanol and ethanol. Enerkem gained funds from oil refiner Valero and trash king Waste Management.

While using bio feedstocks — like sugar, waste, energy crops — to power vehicles in large numbers is a long way off, so-called biofuel companies are now finding some success selling biochemicals. In addition to OPX and its bio acrylic acid, companies like Solzayme and Amyris are tackling bio chemicals first, before turning to fuel.

These smaller, but seemingly abundant, specialty chemical, cosmetic, nutraceutical and pharmaceutical markets are giving companies some of their first revenues and commercialization agreements. As a result, biofuel companies are some of the only ones that have waded into the public market in the greentech field, and companies that have gone public in recent months include KiOR, Gevo, Amyris and Solzayme.

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This morning we’ve heard about three different cleantech investments in smart grid, distributed clean power and even, gasp, next-gen biofuels. GE and a group of investors including Altira, Rockport Capital Partners, NGP Energy Technology Partners, and the venture capital arm of Chevron Technology Ventures, have invested $10 million into small wind builder Southwest Windpower. The stimulus package allocates $872 million over 10 years for federal tax credits for distributed clean power generation like small wind.

Then there’s Ember, a company building wireless sensor network technology, which tells us it has raised $8 million from a long list of investors including Polaris Venture Partners, GrandBanks Capital, RRE Ventures, Vulcan Capital, DFJ ePlanet Ventures, and Chevron Technology Ventures. Ember says the funding was fueled by the “significant surge in the deployment of smart meters,” but there’s another good $4.5 billion in direct investment and billions more in power grid construction in the stimulus package, which will really make that smart meter rollout pick up. Ember calls the stimulus funds a “significant opportunity” for its technology.

Lastly OPX Biotechnologies, a Boulder, Colo.-based startup that is working on genetically modifying microbes for biofuel production, plans to announce tomorrow that it has raised a $17.5M round of funding. The investment was led by Braemar Energy Ventures and also included Altira Group, Mohr Davidow Ventures and X/Seed Capital Management. While biofuels get a smaller piece of the stimulus package compared to clean power generation and power grid construction, they’re still getting billions in research and development and grants.

Last week Lilliputian Systems, a Wilmington, Mass.-based company developing fuel cells for cell phones, laptops and other consumer electronics, announced it has raised $28 million in funding from Stata Venture Partners, Altira Group, Kleiner Perkins Caufield & Byers, Atlas Venture, Fairhaven Capital and Rockport Capital. As far as I know, fuel cells didn’t get a meaningful chunk of the stimulus but energy storage and battery technology that can be used for the grid and electric vehicles did.

Any funding flowing into cleantech looks good given the first quarter of 2009 was as barren as the Mojave: The first three months of the year saw $1 billion, which was a drop of 41 percent from the last quarter of 2008 and 48 percent from the same quarter a year ago. So in those terms we’re expecting that at the very least the second quarter of 2009 will show a pick up of the first quarter. OK so it’s not a scientific study, but let us know if raising funds is getting easier. And thanks Obama!

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Quick, where’s that important note you need right this second? If it’s in Google Notebook, you might want to consider looking at Zoho. They’re taking a page right out of Google and seizing an opportunity. Last week Google announced they were shutting down several services: Jaiku, Google Video, and Dodgeball to name a few. Google Notebook is on the list as well, although it’s not shutting down at this time. It won’t see any additional development however, nor will the browser extension work with it. Effectively, you could keep jotting notes with it but without an expected future for the application or usable plug-in, do you want to?

That’s where Zoho is stepping in. They’ve quickly developed and announced Notebook replacement that fits nicely in their cloud productivity suite. Zoho has a Google Notebook import tool and supporting beta plug-in for Firefox all ready to go. The import instructions appear fairly straight-forward; I’m not a Google Notebook user, so I didn’t try them. Here are the three steps:

• Install the new Zoho Notebook Plugin
• Login to Zoho and Google Notebook
• Go to this URL – chrome://zoho-notebook/content/g2z.html – and click on Start

The Firefox plug-in offers two easy-to-use features that quickly get content into your Zoho Notebook. Select any text and right click to see a “Add to Zoho Notebook” option. Likewise, you can snap a screenshot of any web page or region of a page and have it added to your Notebook.

Props to Zoho for quickly making an import option and a plug-in available in such a short time. This is key aspect of end-user cloud computing that many folks often overlook. Since the software or service is centralized, the provider can be nimble when making changes: develop it, test it, launch it. BAM! It’s there for usage by every single customer in one fell swoop. There’s no having to worry about customers with various software versions, no packaging, no media creation and no delays.

We’re still waiting for cloud computing services to catch up with fully featured software applications, but speed to market and quick solutions are two advantages that I continue to enjoy with these services.

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