Governors' Biofuels Coalition

Chef Caroline Fey of The City Kitchen uses culinary algae oil Thrive. Photo: Anthony Lindsey Photography

Solazyme is one of an array of companies whose initial mission of making alternative fuel has been undercut by cheap oil and regulatory delays. So San Francisco-based Solazyme and fellow biofuel firms are doing what any company might—shifting to something more profitable.

An assortment of bioproducts with high profit margins—antiaging lotions and ice cream made of algae, for example, and household cleaners and perfumes based on yeast—are proliferating as biofuels flounder.

Solazyme in October launched Thrive, “a breakthrough culinary algae oil for consumers in terms of healthy cooking, taste and usability,” as Chief Executive Jonathan Wolfson recently described it to investors. The algae, he said, helps give the oil “a light, clean taste.” The oil is priced at $11.99 for 16.9 ounces.

Beneath the marketing, the products’ proliferation reflects how an idealistic government policy is falling short in the face of market forces. It highlights how the push for biofuels, launched with high hopes a decade ago, has failed to meet expectations, forcing companies, government and activists to adjust.

“Take a lack of forward progress and long-term energy policy in Washington and add $40-a-barrel oil to that, and the result is that with great effort we’re just breaking even in specialized areas of fuels,” Mr. Wolfson said in an interview. “We still believe in the long-term potential for fuel, but it’s just really hard right there right now.”

That reality was starkly underlined recently. U.S. officials, in Paris for a summit on climate change earlier this month, barely mentioned the role biofuels could fill in the world’s future energy landscape.

Corn-based ethanol is the most common alternative transportation fuel and a favorite in corn-rich states like Iowa. But a growing number of critics say it should no longer receive government support, arguing that it raises food prices without mitigating climate change.

That leaves non-corn biofuels, made from such materials as algae, yeast or grass, on which Washington has placed big bets. The government in 2005 mandated specific levels of biofuels in the fuel supply, significantly expanding that mandate in 2007.

Back then, the U.S. imported two-thirds of its oil; today, thanks to fuel efficiency and a domestic oil boom, it imports only a third and consumes far less gasoline.

Already facing challenges of ramping up technology, those economic changes of the past decade have put the squeeze on biofuel companies, which are playing up their new algae- and yeast-based products as natural and healthful consumer products.

Amyris Inc.,  a California-based biotech company, provides oils extracted from yeast for some 400 fragrance and cosmetics brands, including L’Occitane en Provence, Elizabeth Arden Inc. and Clarins.

Amyris launched its first direct-to-consumer product earlier this year, a yeast-derived face moisturizer called Biossance. The moisturizer, which Amyris boasts is “100% plant-derived,” costs $58 per 1.7-ounce bottle.

AlgaVia, a line of algae-based protein ingredients launched by Solazyme last year, promises to “reduce fat without compromise,” and its website touts microalgae as “one of nature’s first food sources.”

Under its AlgaVia brand, Solazyme also makes what it calls “whole algae flour,” a light, yellow powder designed to replace less-healthful ingredients like butter, oils and egg yolks in recipes.  Mark Brooks, Solazyme’s senior vice president for food and ingredients, says it could alleviate the world’s potential protein shortage: “We’re looking into the jaws of the protein crisis.”

President Barack Obama’s administration has struggled to enforce the biofuels mandate, compounding the economic and technological challenges facing the industry.

The Environmental Protection Agency, following a long internal debate, was two years behind in announcing annual biofuel quotas for refineries, with the result that the EPA on Nov. 30 announced the quotas for 2014, as well as 2015 and 2016.

All this uncertainty has pummeled companies founded in the glow of the biofuel promise. The stock of Solazyme has dropped more than 75% since March 2014, from $14.38 a share to under $3 by December.

Membership in the Advanced Biofuels Association, which represents companies making non-corn biofuels, has fallen by one-third in recent years, as companies go bankrupt or shift to other products, according to Michael McAdams, the association’s president.

The Obama administration, trying to stoke the process, has provided millions in grants and loan guarantees to biofuels companies. But much of that hasn’t panned out.

In 2009, Solazyme, for example, received more than $20 million in grants to help build a biorefinery; today, the facility’s primary output isn’t biofuels.

That is part of a broad pattern. Sapphire Energy Inc. has received more than $100 million from the Obama administration, but it decided over the past two years to shift its focus toward nutritional supplements like Omega-3, a fatty acid that derives from algae.

An Energy Department spokesman says the administration often gave money to companies to demonstrate technologies in pilot projects, which are by definition not designed to run indefinitely and instead only prove technologies can work. Much of the technology was proven to work, but companies are not using the technology commercially to make biofuels.

Amyris received nearly $25 million in an Energy Department grant in 2009 for a biofuels demonstration project, at a time when the firm had recently recruited John Melo, a former BP executive, to ramp up the company’s biofuels business.

The demonstration project ended in 2013, and today Mr. Melo, the CEO, spends most of his time on anything but fuels, focusing instead on products like fragrances and tire adhesives. Last year, about one-third of Amyris’s business was related to fuels; today it is 20%, and by next year Mr. Melo predicts it will be 5%.

Now he is working to convince investors his firm isn’t what it said it was a few years ago—an energy company tied to the oil market. “There’s a significant misperception,” he said. “People still think our economics are completely connected to oil prices.”

 

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