Is it algal, or algae? Is HeteroBoost really a technology platform, not a product offered by Michele Bachmann?
How do you communicate the complex bio-story to the broader investing public?
In Minneapolis, the algal biomass industry seeks the answers.
This week, the Algal Biomass Organization is holding its annual Summit in Frostbite Falls. Er, I mean Minneapolis.
Aside from the arduous task ABO set its members in getting to Minnesota — and enduring more airline flight attendant choruses of “we are out of beeforchicken, all we have left is the chickenorbeef” — the event has been a remarkable success, with more than 800 people in attendance.
ABO 2011 has offered an opportunity to consider the progress that the algal biomass sector has made in its race for commercial-scale, to marvel at the proliferation of robust business models, and to sneak a few peeks at the emerging supply chain partners in the exhibit hall (brilliantly organized by ABO and BBI).
Algal or algae?
Senator Al Franken of Minnesota gave the opening address, congratulating the ABO on selecting Minnesota, “a land of 10,000 Lakes and a whole lot of algae,” and kidded that Governor Jan Brewer of Arizona, hosting last year’s gathering in Phoenix, had deported three of the exhibitors. He predicted that Minnesota would be a much safer place for ABO to meet.
“Algal? You are the Algal Biomass Organization? It’s not algae?” Franken enquired of the delegates. “Can I say algae-based fuels? Do I have to say algal? I don’t want to.” Eliciting laughter from the delegates, and probably apoplexy from ABO board member Keith Cooksey, who has been carrying forth the battle for the adjectival form of the noun against mounting opposition.
Turning to the subject of energy, Franken made a strong statement of support for renewables. “Supporting these industries means supporting the creation of jobs, that will otherwise go to China or Korea. We can’t afford to lose our edge, and they are investing. It is completely a tight budget year in Washington, but R&D investment needs to stay strong. “ARPA-E, EERE, these are investments in innovation that will make the US competitive.”
Franken questioned what he described as huge subsidies given to the fossil oil & gas industry, eliciting applause from the delegates.
“In show business, we have these “applause” signs,” he mused. “But in the political world, you don’t need them, you just say ‘eliminate the billions of dollars in subsidies for oil companies,’ unless you are in Texas, I guess, or meeting with the Koch brothers.”
Phycal, BioProcess Algae, Sapphire Energy, Heliae and Algenol in the spotlight
The first plenary session set the stage for the week to come – featuring Sapphire Energy chairman & president C.J. Warner, Phycal CEO Kevin Berner, BioProcess Algae CEO Tim Burns, Heliae CEO Dan Simon, and Algenol CEO Paul Woods, in a panel moderated by former Cargill technology chief Ian Purtle. Harrison Dillon, president of Solazyme, gave the luncheon address to add to the rock star atmosphere.
Algenol’s Paul Woods, who generally makes only rare appearances on the conference circuit, gave the best presentation I have seen from him yet. He hit all the high notes in describing a single-minded focus on reducing cost, fighting cost, disliking cost, probably won Algenol quite a few new admirers. $1 per gallon ethanol – that is a simply story, simply told.
The funky story about modified algae that secrete ethanol that is collected via a condensate that forms in the head space of his photobioreactors, has sometimes struggled to win an audience, because he doesn’t talk in terms of lipids, and dewatering and harvesting, or nutrient load and recovery.
The BioProcess Algae story was well received – an algal technology now bolted onto the back-end of the Green Plains’ corn ethanol plant in Shenandoah, Iowa. The 5-acre site ready for 2012 will be expanded to a 400-acre facility which would break ground later next year. “Emissions are an opportunity,” said CEO Tim Burns.
It was the first time we have seen Dan Simon on the main stage presenting the Heliae story. His message: a focus on capex and opex, bringing the low-cost of open ponds systems to the high yields of the closed PBRs. His system, ultimately, is going to look something like a greenhouse, and is expected to be built out to 160 acres by 2013.
What exactly is HeteroBoost?
As Phycal CEO Kevin Berner introduced his technology, it occurred to me that Phycal’s brilliant production system, in which they grow skinny algae in the ponds and then fatten them up by feeding Phycal-grown cassava sugar to them in dark fermenters, is badly named.
At Phycal, they call their system HeteroBoost, which sounds like a product Michele Bachmann would promote, to prevent you from becoming gay.
Over at Solazyme
We have also been having trouble finding a way to talk about what Solazyme is and does. They want to be known as an advanced sugar fermentation company that makes renewable oils, and bristle at being described as “one of those algae companies”.
They are right, of course – after all, does anyone describe Anheuser-Busch as a yeast company, just because they use yeast in order to make beer?
But how do we talk about Solazyme in a way that connects with investors? There is evidence that, even if algae is not suitable as a handle, “we make renewable oil” isn’t wow-ing them in retail investor land, either.
Like a lot of companies in the space – Gevo, Codexis and Amyris, too — Solazyme is trading at a huge discount to their target share price.
The share price is very much at odds with the pace of company activity. The company has so many off take partners showing up, the line of Biz Dev people at Solazyme HQ is reportedly causing traffic snarls near the San Francisco airport, and even the receptionists and legal staff, we hear, are carrying rivet guns, in the race to build capacity.
But Solazyme’s shares are mired in the sub-$10 range. It causes heartache for the current investors, not least because the post IPO share lock-up expires in just a few weeks for the company and its insiders.
The common theory on the plight of SZYM, AMRS, GEVO and CDXS? Investor panic. You know the rap. The Euro goes to hell (again), recession looms (again), Washington is gridlocked (again), so investors panic (again). And panic is especially focused on new-fangled technologies on offer from newly-public advanced sugar fermentation companies.
Of course, there’s another theory that could be advanced, in lieu of blaming investors for a cowardly rush for the exits.
The arduous tale
It could be that biofuels, renewable chemicals and materials have an overly complicated and wrongly-told story.
What investors have been trained to think is that “green” equals “higher costs,” is a luxury, requires subsidies, and is currently unaffordable.
Their belief: carbon mitigation is a cost that will be saddled on the hard-pressed (and possibly unemployed) consumer.
They have come to believe that R=S, renewables equal subsidies. Small wonder, since that’s generally what the communications effort of the renewables industry is generally aimed at, generating hand-outs and hand-ups in Washington, Brussels and elsewhere.
The message of the industry’s current investors to the world: the military should provide the capital for renewable diesel, that airlines should build out aviation biofuels, that governments need to provide incentives, tax credits, mandates and tariffs for the development (at scale) of everything else. And that anything not already paid for by any of the above should be paid for by oil companies, who apparently should be delighted at the opportunity to invest in putting themselves out of business.
Moreover, that everyone with some money to put into the market, should take time away from the process of raising kids, paying the bills, and keeping their jobs, or possibly finding a life mate, in order to spend more time understanding the complex story of how synthetic biology is changing the shape of global private enterprise.
In her address at ABO, Sapphire Energy president CJ Warner, who has gracefully become something of an eloquent speaker in her couple of years in the business, took a stab at a simpler story line. “We are learning to be algae farmers,” she said. “It’s agriculture.”
“It has to scale, in order to matter. To scale, you’ve got to think like a farmer, and find the lowest-cost way to grow algae. You’ve got to use no liners in your ponds, no expensive techniques to move the algae. Strains have to be robust, just like plants are.”
Phycal CEO Kevin Berner agreed. “I’m a farmer,” he said. “I have three big things I have to do. I have to be competitive without a subsidy. I have to understand whatever crazy feedstock will give me the lowest cost. I have to understand that to reach scale my project is going to be a total capital pig, and I have to provide some way to provide meaningful return on the investment.”
A farmer. Some algae-based CEOs are happy to be described that way. Others grumble. It may be overly simplified to describe the algae industry as a farming industry, and it may be not quite as sexy. In the crashing together of high-tech and agriculture, most CEOs like to tout their technology rather than their bib overalls.
But when you have a stock trading 75 percent below where it should be, there’s reason to seriously consider whether the message, as currently structured, is playing well to the retail investor. And investors are ultimately going to foot the equity bill for this industry to scale.
Maybe these green acres need, well, a little more Green Acres. Specifically, a little less Eva Gabor and a little more Eddie Albert.
The thing about farming is this. It is a way of using technology to materially transform the value of land. Land is solid, always there. In this context, modern farming is high-tech for high-value, whereas the biomaterials industry (including biofuels) is higher tech for higher-value.
It implies that a certain amount of backward integration is the proper strategy for biomaterials. Since what is being transformed is land value, in order to own the value-add you have to own the land, or the longest-term possible grower contracts. That’s a conclusion, by the way, that Phycal came to. And BP Biofuels, too. Otherwise you end up competing for access to land – with food or fiber agriculture, or even urbanization pressures.
The Obama effect
The homespun touch that builds deep support for big ideas, certainly served Ronald Reagan well and is certainly a quality that Barack Obama lacks. Obama’s substantial rhetorical gifts generated broad, but fatally thin, support for “change you can believe in.” His inability to generate the abiding, broad support that effects real change in the political realm, may well cost him the Presidency in 2012.
Advanced biofuels CEOs would be well advised to take heed. “Complex” plays well in Washington only so long as “they get it” out there in Voterville. And Investorville.
The industry, struggles to explain why, for instance, how it can talk about being integral to a low-carbon world, and then spends most of its business energy on finding massive, low-cost sources of carbon.
The carbon problem
The “carbon problem,” in fact, is one of the most gigantic ruses ever foisted on a nervous public that sees the leaves changing later in the season these days, and fretfully wonders if the resort beaches of the Seychelles are going to be underwater in a couple of decades.
Here’s the ruse: The world doesn’t need less carbon, it needs one heck of a lot more carbon. And all the phosphorus, nitrogen and potassium anyone can lay their hands on. To form the feed, fiber, food, power and fuels of the future. Nine billion people yearning for a middle-class lifestyle in 2050 will demand it.
The problem is that the carbon is in the wrong place.
Just as if a cow pees in the middle of a field, we call it nitrogen fertilizer; pees on your shoe, that’s a nuisance.
Capture and distribution
What is needed is carbon capture and distribution, as opposed to carbon capture and storage, which is expensive and wrong-headed. Scoville’s John Williams described it as “catch and release” – which is Reaganesque in its simplicity.
The good news? C.J. Warner predicted that help is on the way. “For now, the right strategy for algal farms is to co-locate with a carbon source, to expect to pay for CO2, expect no meager subsidy to endure, and work hard on cost. But when this industry scales up, though, another industry will rise up to provide CO2 supply. Right now, non food grade CO2 is a waste stream. At volume, innovation will make it cheaper and more available. For now, the paradigm is all around highly-pure CO2 for Coca-Cola, or for enhanced oil recovery, which uses a very pure CO2. That paradigm will change.”
Phycal’s Kevin Berner added, “I will be astonished if Kinder Morgan is not transporting CO2 in the future.”
Carbon needs a market value, more than a government price
So there you have it. Low-grade CO2 does not need a government price, it needs a market value. Creating value – that is the enduring global solution, through the power of markets. As it always has been, even back in the days when John D. Rockefeller figured out a way to use gasoline, when everyone else was dumping it into the Cuyahoga River. It was finding value for waste streams that got us into the carbon problem, and will get us out.
But there’s a lot of waste emissions. To absorb them will require scale, which will require time, and capital, and investor belief. That means simplifying the renewables story, and making it less about creating subsidy streams, and more about creating value for waste streams.
Subsides, after all, are a discount paid to investors for their own lack of belief in the future of their own products, during the period when they lack the scale to be competitively priced with the incumbent.
We’ve said it before. Industry: get off the government dope, it’s killing your chances of raising money for real scale, because it sends the wrong message about your business model. The good companies are already talking in terms of being competitive without subsidies, period.
If instilling more belief in the importance of defining the message about green value – as opposed to more chatter about green costs, green premiums, and feed-in tariffs – is one of the outcomes from ABO, it will be worth all the chickenorbeef and beeforchicken from all the planes that everyone took this week to get all the way to Minneapolis.