Friday, June 12, 2009

The Color of Carbon

“Algae? This is a color?” - Albert Einstein

The discussion of carbon sequestration started in the previous post “Down with Carbon” on June 9th did not include the biodiesel companies that have their eyes on carbon dioxide as a feedstock for algae generated biofuels. The idea of solving two big problems with one solution is seductive, but science is not yet lined up behind algae-derived biodiesel.

The idea is to capture CO2 from power plants for use in photobioreactors stocked with algae. The algae grow by using CO2 in the normal photosynthesis process. The algae are oil rich and can be processed into biofuels. Animal protein supplements are a by-product of the biofuel production.

There are a number of start-ups with algae-based biofuel projects underway.

GreenFuel Technologies Corp. field tested its “Emissions-to-Biofuels” technology at a coal-fueled power plant in New Roads, Louisiana owned by NRG Energy, Inc. (NRG: NYSE). Similar tests were conducted at the Sunflower Electric facility in Kansas and the APS Four Corners facility in Arizona. GreenFuel has also installed a larger scale unit at the APS Redhawk facility and has a commercial project underway in partnership with Aurantia, SA, an alternative energy company based in Spain.

Solazyme, Inc. a self-described renewable fuel production company, recently raised $57 million in Series C financing to further develop its micro-algae biotechnology. Its oil production process relies on non-food biomass and industrial byproducts that are converted to oil by the algae. Solazyme claims to be already producing thousands of gallons of oil in commercial scale facilities. Apparently, its branded Soladiesel fuel has been road tested as an unblended fuel. If Solazyme’s claims are true, we expect a public offering in the next couple of years.

Yet a third private company, Solix Biofuels, is also pursuing algae technology. The Solix system apparently has the ability to capture emissions directly from power plants and factories. Solix got its start through the U.S. EPA’s Aquatic Species Program in the late 1970s. Solix has not made as many claims as Solazyme, but appears to have the ear of investors. Solix completed a Series A financing round in late 2008, to build a biofuel plant in Durango, Colorado. Participation in the round and placement of a representative on the Solix board of directors by Valero Energy Corp. (VLO: NYSE) provides a strong endorsement for Solix’s technology.

The only public company in the algae business is Petrosun, Inc. (PSUD: OTC/PK). However, as a non-reporting company is might as well be private from an investor’s standpoint. In the company March 2009 progress update, management outlined plans to apply for federal funding and university grants. Petrosun has other energy interests, but all appear to be at the developmental stage.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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