Enthusiastic entrepreneur places big bet on algae

Source: Amanda Peterka, E&E reporter • Posted: Thursday, April 10, 2014

FORT MYERS, Fla. — Paul Woods has done the math, and the magic number is $1.27.
The entrepreneur behind Algenol has calculated it’ll cost that much to produce a gallon of algae fuel using his technology. It’s a cost that will allow Algenol to compete in a marketplace dominated by petroleum.And it’s the number that’ll make recycling industrial carbon dioxide turn a profit.”I think you can do really simple math. This planet has one chance at diverting climate change, and it’s Algenol,” Woods said here at his demonstration facility among the sandy beaches and palm trees of Florida’s Southwest coast.

Woods, a Canadian with long blond hair who’s more comfortable in a polo shirt than a suit and tie, will soon have a chance to test his technology. Algenol plans to launch its first commercial-scale projects this year with major carbon emitters in the state.

Breaking into commercial production of advanced biofuels has eluded many companies. Policy remains uncertain despite a federal mandate that the country move beyond corn ethanol, while financing commercial-scale projects is a difficult barrier.

In the algae industry, most companies have turned to smaller markets, such as nutrition supplements and cosmetics, finding them more profitable in the short term than the fuel market, where payoffs are unclear and competition from the oil industry is fierce.

If it’s successful, Algenol will be the first algae company to commercially produce all four major fuel products — ethanol, gasoline, diesel and jet fuel. And it’ll help establish the algae industry as a potential mitigation strategy for climate change and cement Florida’s growing significance as an algae-producing state.

“They’ve certainly staked out a unique niche in terms of the algae space,” said Philip Pienkos, group manager of the bioprocess research and development group at the National Renewable Energy Laboratory.

Woods says he’s pumped $200,000 of his own money into the company and hired some of the world’s best scientists to see that his math is correct. Algenol is backed by a $25 million Department of Energy grant and a $10 million grant from Lee County, Fla.

Woods is known for an unending enthusiasm coupled with an unforgiving bluntness. Over the past year, he’s threatened to move both out of the county and out of the state. He goes to Washington, D.C., as little as possible because, he readily admits, “I just don’t have the temperament for it. My mouth would just be running away from itself all the damn time.” Oil companies aren’t in his favor, either: “They lie. They cheat. They steal. They do outrageous things.”

The idea of producing ethanol directly from algae first came three decades ago while Woods was a student geneticist. Instead of pursuing the vision, though, he made a career out of natural gas trading, retiring in 2000 at the age of 38 to southwest Florida.

Woods said he continued to watch developments in the energy space, including hydraulic fracturing, and decided to launch Algenol in 2006.

“After I’d been retired for six years, I thought, you know what, the price of oil has crossed $50 [a barrel], and it will never go below $50 again,” he said. “I had traded natural gas for 11 years. I knew a lot about the fundamentals of energy. Clearly fracking wasn’t truly in place by that point, but fracking has not proved to be cheap. It’s been great — but not cheap.”

Eight years later, rows of strong plastic bags filled with murky green water of varying shades hang from frames at Algenol’s demonstration facility. The operation looks like a vineyard when you squint, said Rick Michael, Lee County’s economic development director.

Sterilized salt water containing cyanobacteria and carbon dioxide is pumped into the plastic bags — which are 4 feet by 4 feet, hold 16 liters and hang about a foot off the ground — through a system of hoses controlled by a computer. The blue-green algae remains in the bags for about 30 days, constantly bubbling, during which it becomes a darker shade of green and produces a weak salt water-ethanol mixture through a fermentation process akin to making beer.

The mixture is fed into a unit that concentrates the ethanol. Algenol then feeds the spent algae into a process called hydrothermal liquefaction that produces gasoline, diesel and jet fuel.

At the facility, six tan buildings, the latest of which was completed last fall, contain laboratories with a lot of computer monitors and test tubes, conference rooms, and offices.

“It was really exciting when it changed from being just an R&D program to, holy crap, this thing really works and we’re going to build it,” Woods said, driving around the facility on an 80-degree February day in a golf cart.

The company is trying to cross the “valley of death” — that precipitous moment when a startup moves from small scale to commercial. Several alternative fuel companies have succumbed to the valley because of the inability to raise enough capital or find partners to fund large-scale production.

“There are always glitches if you’re trying to get up and producing,” said Mark Riedy, counsel at Kilpatrick Townsend & Stockton LLP. “Back in history, when we changed from sailboats to steel and wooden ships with sails, to steel hulls with coal, to cars running on gasoline, to now changing to alternative fuel and alternative power applications — you’ll see that each one of these periods of change and new industries coming online faces similar financing difficulties.”

For Algenol, scaling up will essentially mean creating more acres of hanging bags and building a plastic-bag manufacturing plant. Everything is geared toward getting across the valley.

The company, for example, began with 2,300 different types of blue-green algae. Scientists in Florida and Germany, where Woods sends European scientists interested in working for Algenol, narrowed down the field to one strain that was more productive than the rest.

Algenol switched from horizontal bags that lay across the ground to hanging vertical bags, because scientists found that the algae have a higher productivity in the vertical bags. The company also recently went from wooden frames to steel because they were cheaper.

Algenol is getting carbon dioxide for free, or nearly free, from emitters looking for a way to mitigate their greenhouse gas emissions. Like other algae companies, it’s trying to market itself as a carbon mitigation company.

“We started this company completely as a fuel company, no doubt about it,” Woods said. “I don’t think we’ve completely switched away from being a fuel company — of course we’re a fuel company — but are we a carbon monetization business? Oh hell yes we are.”

Algenol formerly had a partnership with Dow Chemical Co. to provide the plastic for the technology but broke it off in 2010.

The company currently has a partnership with energy company Reliance Infrastructure Ltd. to commercialize the technology in India, and other agreements to build systems to capture carbon dioxide in Brazil and Israel. Right now, the only place Woods said he won’t build is in China because Algenol has detected more than 200,000 hacking attempts coming from a Chinese IP address. “Have the balls to come in here and buy my technology,” he said.

‘Very aggressive goal’

Algenol is aiming to make 8,000 gallons of fuel per acre per year to hit the $1.27 mark. Algenol could go as high as 9,000 gallons, but that would require more bags per square foot, driving up the capital cost above the per-gallon goal.

Conventional corn ethanol plants produce 300 to 400 gallons of fuel per acre per year.

Algenol’s system varies from the other big algae-to-fuel producer in the country, Sapphire Energy Inc., which is using huge open ponds in the Southwest to cultivate algae. One other company, LanzaTech NZ Ltd., is converting industrial gases into ethanol. LanzaTech, though, is using a bacterial organism to convert carbon-dioxide-rich waste gases from Chinese steel mills into ethanol.

John Holladay, who is responsible for biofuels research at Pacific Northwest National Laboratory, said Algenol is well-positioned to succeed. Holladay helped develop the technology that Algenol uses to convert spent algae into hydrocarbon fuels.

“They’ve had a long, long road of developing the science that was required to make this work. Sometimes people don’t understand the road and how much was done to get to the point where they are today,” Holladay said. “I just don’t think one can under-appreciate the many hard years of hard work.”

Still, Algenol’s target of $1.27 is a “very aggressive number,” he said.

“I think they’re poised to have very low-cost ethanol. We’ll see where that cost actually is,” Holladay said.

At NREL, Pienkos’ team in 2012 calculated that it was possible to produce cellulosic ethanol from agricultural waste for $2.15 a gallon and that it would compete in the market. Pienkos said that Algenol’s advantage is getting the cyanobacteria to produce ethanol directly.

“They have circumvented the whole need to generate a bunch of biomass, harvest biomass and convert it to fuel,” he said.

Algenol’s location in Florida also helps. Conventional wisdom says that algae facilities belong in the Southwest, where land is plentiful and the weather is hot year-round, but researchers recently have pegged the Southeast as superior.

“Algae need lots of sunlight, they need land where you’re going to grow them, and they need water. These are things that are available in the state,” said George Philippidis, a biofuels expert at the University of South Florida.

Complicating the math, though, is policy uncertainty and Woods’ outspokenness, which can sometimes rub policymakers the wrong way.

Last year, Florida enacted a law eliminating the state’s renewable fuel mandate. Woods publicly threatened to move out of the state, and officials had to woo him to remain through a series of meetings.

Patrick Sheehan, director of the Florida Department of Agriculture and Consumer Services’ Office of Energy, said that the state was “very pleased and happy” with the meetings. The state’s chief concern was that the algae would be released into the environment during natural disasters.

Algenol has six bright white boxlike rooms that mimic different environmental conditions. As part of the agreement to remain in Florida, Algenol allowed the state to control some of the experiments; the company locked up two shelving units filled with jars of algae in one of the rooms and handed the state the key.

The latest kerfuffle happened in mid-February when a Lee County commissioner said he was “suspicious” about whether Algenol had the required 108 employees to keep its $10 million county grant.

In response, Woods furnished documentation showing he had 127 full-time county employees; he then pulled them all into the conference room and invited the public. He threatened a defamation lawsuit against the commissioner, Cecil Pendergrass, and to move a plastic bag manufacturing facility elsewhere.

“Cecil’s an idiot for making that comment,” he said.

Pendergrass said in an interview about a month later that he supports Algenol: “Paul — I wish he would be more professional. … I never meant to hurt Paul’s feelings or Algenol’s feelings.”

The county says it is supportive of Algenol because it represents economic opportunity. The area is still recovering from the recession, which hit the construction industry and slowed down the sales of homes in Florida’s coastal areas.

“Algenol represents an opportunity to not only attract capital investment but to create value-added jobs,” said Michael, the county economic development director.

At the federal level, the algae industry has gotten mixed signals from Congress and the Obama administration. Congress added algae to the $1.01-a-gallon producer tax credit for next-generation fuels, but then allowed the credit to expire. The Obama administration maintains it supports biofuels but recently proposed the first-ever reduction to the federal biofuel blending mandate.

The industry has bipartisan support for including algae in master limited partnerships, a tax mechanism that would allow it to compete with oil companies for investment, but the legislation is stalled.

Woods says he views the policy uncertainty as a temporary obstacle. He says he puts up with it for his three kids: two daughters who are 26 and 8 years old, and a son who is 6 years old.

“I have an unbelievable stubbornness, I think,” Woods said. “I’m not going to let these guys derail my vision. I’m not going to let all of their stupidities and roadblocks and partisanship — I’m just not going to let it stand in the way.”