Investors Fuel Solazyme With $52M for Algae

Investors are still pumping money into algae fuel, despite the lack of commercial availability of the green gas. This morning, seven-year-old Solazyme announced that it has raised $52 million in Series D financing from investors including Braemer Energy Ventures, Morgan Stanley, and Chevron Technology Ventures, the VC arm of the oil giant. Including this round, Solazyme has now raised over $125 million.

Solazyme’s funding news comes on the heels of Exxon (s XOM) and Synthetic Genomics — geneticist guru Craig Venter’s algae fuel company — officially opening up their algae test facility at Synthetic Genomic’s HQ in La Jolla, Calif. Exxon and Synthetic Genomics have a $600 million development deal to use genetic engineering to develop productive strains of algae that can be turned into biofuels.

Another well-funded algae fuel company is Sapphire Energy, which has raised more than $100 million from the likes of Bill Gates’ investment firm Cascade Investment, as well as ARCH Venture Partners, Wellcome Trust and Venrock. Sapphire says it will make 1 million gallons of algae-based diesel and jet fuel per year by 2011 and 100 million gallons per year by 2018.

Solazyme, based in South San Francisco, engineers efficient algal strains, grows its designer algae in fermentation tanks without sunlight by feeding it sugar, and uses existing industrial equipment to extract the oil. The company is looking to commercialize its technology in the 2012-2013 time frame, with a production cost target at $60 to $80 per barrel, Solazyme CEO Jonathan Wolfson told me last year in an interview at their labs.

In the announcement today, Wolfson emphasized that the company is on a “rapid path to commercialization,” and this funding is supposed to help the company get there. The issue for all of the algae fuel players is that it requires so much capital to build a commercial scale algae plant, on the scale of “over $100 million,” Wolfson told me last year. And like with Synthetic Genomic’s deal with Exxon, Solazyme will likely commercialize its technology with an oil partner (as a strategic investor Chevron would be a safe bet).

If these algae fuel companies aren’t able to reach commercialization, as Craig Venter put it once: they;re “just playing” and “wasting investors’ money.” Basically, the algae companies need to be able to reach the scale at which the oil companies currently operate to be competitive. There are a lot of skeptics who think algae fuel won’t be able to reach that scale economically.

At the end of the day, the overall carbon emissions reductions we could get by swapping out gasoline for algae fuels totally depends on the algae fuel production process. Algae absorbs CO2 as it grows, and this CO2 can come from, say, power plant emissions, thus providing a productive way of recycling the carbon emissions. But when algae fuel is burned in an engine, guess what? The carbon dioxide is released. If an efficient process is worked out, the process could be carbon-neutral, but it will entirely depend on how efficient the production process is.

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