C&EN first wrote about leading algae firm Solazyme in 2009. At that time algae firms were gathering up venture capital funding and perfecting their technologies for growing the green slime. Many were targeting biofuels markets, but some firms had additional markets in mind.
Solazyme’s algae live in large fermentation tanks and eat sugars, which are transformed into algal oil – a type of vegetable oil. The company went public in late May, and raised $227 million from investors.
We checked in with Solazyme to find out more about its business model, and the types of markets it is targeting with its oils. Cameron Byers, senior vice president & general manager of fuels and chemicals gave us a closer look.
C&EN: I first spoke with Solazyme back in early 2009 – it seems like forever ago in algae time. Even then, the firm was targeting specialty chemicals, food, and cosmetics in addition to biofuel. How did that diverse product strategy affect your ability to attract investors and business partners pre-IPO?
Byers: Producing a diverse range of products is not just important, it is what our technology platform was designed to do in-line with our business model. The markets served by conventional oils – petroleum, plants and animal fats – represented an opportunity of over $3.1 trillion in 2010, an attractive potential market for investors. Solazyme’s custom oils can address each of these markets, providing both an environmentally and economically sustainable solution. As an example, Solazyme recently announced a joint development agreement with The Dow Chemical Company to develop of a new class of algal oils tailored for optimized performance and cost in dielectric insulating fluid applications. Dielectric fluids alone represents a 500 million gallon market.
C&EN: Many renewables firms that would otherwise be going after the biofuels market are first looking at chemicals (and some are focusing on chemicals, like Gevo). I know that is also a future-term market for Solazyme. Can you tell me more about why Solazyme’s algae and processes are a good fit for renewable chemicals? Would chemicals commercialization come ahead of fuels? How far ahead?
Byers: Petroleum and natural oils have long been the building block for a wide variety of chemicals. Solazyme is focused on making oil to replace and/or enhance the current sources of oil in multiple market areas. We are not focused on producing a single molecule product, but instead, we are using our ability to tailor our oils by carbon chain length, saturation and other functional properties to create new oils that are specifically designed for chemical applications and fit into the existing chemical manufacturing infrastructure. We are creating oils that not only mimic oils found in the natural world- petroleum, plant oils, oils from animal fats- we are also creating highly specific new oils that can’t be found in the natural world. We have a very market focused and driven approach and we are listening to our partners’ needs and are working to deliver for them. A perfect example of this market driven work is Solazyme’s PKO+ oil that we have designed to replace unsustainable palm kernel oil in surfactants, personal care products, and soaps, among others. The key to our commercialization strategy is that we want to produce high value designer oils that improve our partners’ businesses with a new pipeline of feedstock oils. These oils not only have a positive environmental benefit, but they streamline manufacturing processes.
Our business model of commercializing into different markets has remained consistent over the years as we have been intently focused on scaling and driving down the cost curve. We explained years ago that as we came down the cost curve toward fuel economics, that we would be entering into key higher value market areas such as skin and personal care, nutrition, oleo and specialty chemicals, and then fuels. In our S-1, we announced that in late 2010, we had reached a production cost of 1000$ per MT for our oil in a purpose built facility, which is at or less than $3.44 per gallon of oil.
C&EN: I know these things are hard to predict, but what evidence do you have that algae-derived chemicals would be advantaged over petroleum (i.e. in terms of cost). Looks like the price per bbl of algae oil is getting closer but not cheap. Would you focus on specific, high margin chemicals?
Byers: The biggest advantage is that this designer algal oil technology means the days of oil being ‘what you see is what you get’ are over. We can optimize oil profiles with this fermentation platform technology and produce at scale in a matter of days in a purpose built facility. To put this in perspective, in the traditional natural oil world, to change an oil profile of a plant could take years- either with genetic modification or even hybridization. Our technology uses algae to produce oils that are direct mimics of natural oils or designed optimized oils for specific uses. And we can do this in DAYS.
This ability to design oils for specific products and applications decreases waste (manufacturers no longer have to figure out what to do with the other 40% of the barrel of oil feedstock that they can’t use), and it also helps companies by adding another feedstock oil stream to protect against unforeseen events such that might wreak havoc on natural oil producing environments, such as a hurricane wiping out and entire palm plantation. The bottom line is that Solazyme oils are not commodity grade oils. They bring higher benefits and higher ASPs to the chemicals marketplace.
C&EN: From a technical standpoint, what is Solazyme focusing on as it scales up to make algae oil cost-competitive (especially for chemicals and fuels)? Is it the infrastructure, strains, getting the oil out of the algae?
Byers: Solazyme is focused on bringing our tailored oils to the commercial marketplace. From a technology standpoint, we have reached our key technology milestones to reach fuel production economics in a purpose built facility. And, we have already been running at commercial levels, producing 100s of thousands of gallons of oil that have been refined into in specification fuels (Soladiesel and Solajet). We have also made lubricants, dielectric fluids, surfactants, soaps, detergents, shampoos, conditioners, and foams. These oils are valuable and work in a wide range of applications. We recently purchased an existing fermentation facility in Peoria, IL to continue the drive to commercialization. A key area of focus for us now is on getting capacity for oil production online.
C&EN: Do you anticipate that Solazyme’s work on fuel for military applications will help raise the profile and, perhaps demand, for algae fuel? I imagine the price per gal is out of reach for most applications.
Byers: Our research and development work with the military for their fuel testing and certification program has allowed us to scale up and deliver the largest quantities of microbial non-alcohol advanced biofuels ever produced, proving that this technology can work at scale and can produce fuels that are complete drop-in replacements to petroleum fuel. The military has very specific goals on renewable energy and the Navy in particular has set an aggressive goal of running its fleet on 50% renewable sources by 2020. They are sending market signals that there is a demand for these renewable sources of fuel. Just as they have led in the early adoption of other technologies such as the cell phone and even the internet, they continue to have a long view on the importance of energy security.
C&EN: For the leading algae firms targeting a future market in biofuels, what would you say are the major hurdles today? For Solazyme, how has your successful IPO helped with these challenges?
Byers: While we can’t speak for the industry in general, there is no doubt that producing at scale is crucial. This principal is one of the key reasons we designed our technology to fit into the existing infrastructure at every step of the process, from standard industrial fermentation, to refining, to end market products. With major technology hurdles behind us, we are currently focused on bringing production capacity online. Our IPO gives us flexibility in meeting this goal.
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