Biofuels From Algae?

How Ventures can Harvest from the Third Great Algae Bloom

Biofuels from Algae?

How Ventures can Harvest from the Third Great Algae Bloom
By Robert Henrikson. April 3, 2009.

Algae has a natural bloom and bust cycle.

In a natural environment, algae blooms in lakes when spring rains deposit nutrients and
summer sunshine heats the waters. When rapid algal growth exhausts its nutrients,
sudden collapse leaves a big mess.
In a commercial growing environment, scientists control nutrients and growth
conditions to prolong algal growth and achieve high productivity.
In the world business environment, three decades of algae development may more
closely parallel the bloom and bust of natural algae ecosystems. The race to develop a
new biofuel from microscopic algae represents a third algae business bloom. Lessons
from the first two highlight opportunities and challenges for those companies that hope
to harvest this new algae bloom.
Government, corporate and private investment dollars are pouring into R&D to grow
algae and extract oil for biofuel. The big opportunity is the promise that growing algae is
20 times more productive per land area than terrestrial crops.
The big challenge - as commercial algae growers know well - is the big cost. Investment
and operating cost to achieve algal productivity is far higher than terrestrial crops.
Today algae is grown commercially for higher value products such as food and feed
supplements and pharmaceutical extracts, selling for 10 to 50 times more than fuel.
Using known technology and experience, if biofuel from algae could be produced, it
may cost $30 per gallon. How can costs fall to compete when oil costs only $50, $100, or
even $200 per barrel or $2 to $5 per gallon at the pump?
Before algae biofuel ventures burn though millions, exhaust their nutrient supply and
collapse, how can they reach the goal of harvesting a commercial biofuel? How can they
last the 5, 10 or 15 years to get to scale to lower costs? What business models and
product strategies along the way will produce revenue streams to buy time?
In each of the past three decades, three algae blooms that stimulated business and
market development were the first demand bloom 1981-83, the second demand bloom
1994-97, and now the first investment bloom beginning in 2006.
First Bloom: Algae as diet fad 1981-83.
The first algae commercialized for food and feed supplements were Spirulina and
Chlorella. By 1981 the first algae producers had begun in Mexico, Thailand, Taiwan and
California USA with production research facilities in Israel, India and Japan. Production
scale was about 500 tons worldwide. Since 1979, spirulina was sold in the US health food
market as a new natural food, gaining credibility and market share as an energizing,
high-protein, all-natural, detoxifying food supplement the food of the future.
In June 1981, a front page National Enquirer story hyped spirulina as a Safe Diet Pill.
This overnight diet fad pumped demand 10 to 100 times, outstripping supply, mostly
from a grower in Mexico (Sosa Texcoco), followed by growers in Thailand (DIC Japan
Siam Algae) and next in California (Earthrise Farms).
The first round of algae wars unfolded as existing spirulina marketing companies fought
over the limited supply. For scores of diet pill manufacturers eager to harvest this diet

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 Biofuels From Algae? How Ventures can Harvest from the Third Great Algae Bloom

fad, no supply was no problem. They manufactured and sold millions of bottles of
phony spirulina, largely adulterated with alfalfa and other green colored filler.
The diet fad, of course, ran its course, and much of the public turned off to algae by the
lack of results losing weight and hearing about phony products. The algae market
tumbled down, down, down through the 1980s. Even worse, US Food and Drug
Administration (FDA) now alarmed by these drug-like health claims and phony
adulterated products, launched a pogrom against algae as a food.
The brunt of the FDA assault was borne by the two commercial algae producers in the
USA, Earthrise in California and Cyanotech in Hawaii. Years of regulatory battles
ensued, to educate the FDA about what microalgae was and how it could be safely and
legally sold as a food supplement. Along the way, algae producers developed a range of
quality certifications, including ISO 9000.
Second Bloom: Algae takes off worldwide 1994-97.
Behind-the-scenes, scientific research, much of it from Japan, was documenting the
health benefits of spirulina. Published research on the immune system, detoxification
and beneficial intestinal flora, supported why people felt better taking as little as 3
grams of algae per day. By the early 1990s, the US market for spirulina and chlorella was
growing, backed by informative articles on health benefits.
Around this time, distributors from a multi-level marketing company were growing
their business with health claims for wild blue green algae (aphanizomenon flos-aquae)
harvested from a lake in Oregon. International demand for spirulina began taking off,
and US producers began exporting more. Just about the time when a huge new market
for spirulina began booming in China through multi-level marketing, a supply shock
took place.
In 1995, the worlds largest spirulina producer in Mexico stopped production due to
problems in its larger business group. This worldwide supply shortage lasted several
years and drove spirulina prices up much higher. Within 3 years, profitable operations
helped the two large US producers restore their balance sheets, overcoming a decade of
accumulated losses.
But good times began to unravel by 1997. The Chinese government, fearing multi-level
marketing companies were out of control, shut down all network marketing companies
across China. The huge spirulina export business from the USA to China collapsed. The
multi-level marketing company harvesting blue-green algae from the lake in Oregon
was exposed by the state for alleged toxic algae contaminated product, and their
business trailed off.
Then new government subsidized spirulina farms in China began dumping lower
priced product into the world export market. Indian spirulina producers began
exporting. With world supply surplus, algae prices tumbled, and by 1998, the second
algae bloom was history.
Third Bloom: Algae biofuel investment 2006-present.
Nearly a decade has passed. Annual world microalgae output may have reached 10,000
metric tons including spirulina, chlorella, dunaliella and hematoccocus.
By 2006, hundreds of millions in government, corporate and private investment funds
were looking for the biofuel of the future. Knowing ethanol from corn was a net energy
loser, and while looking at crops like palm oil, oilseeds and jatropha, the productivity of
algae looked better - 20 times higher than terrestrial crops. Some fast-growing oil-rich
species are 25% hydrocarbons. Driven by investors, the third algae bloom unfolded.

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 Biofuels From Algae? How Ventures can Harvest from the Third Great Algae Bloom

During the first two algae blooms, many ventures entered the business of growing algae.
Few survived and prospered. The same will be true this time.
Numerous algae companies have successfully raised millions for algae biofuel R&D and
production. But, consensus at conferences is commercialization may be 5, 10 or 15 years
away. Experts with actual commercial experience growing algae are more sanguine.
To achieve high productivity, algae systems require more capital investment than
conventional agriculture. This investment must be serviced. Large-scale production has
challenges acquiring water in areas with suitable heat and sunshine for growing, and
buying phosphate and other limited nutrients. Time and experience are necessary to
maintain culture stability and purity and prevent zooplankton grazers. There are high
costs and energy to separate algae from water and extract the biofuel portion.
Some ventures claim breakthroughs in harvesting technology. Even if such technology
can be successfully scaled up, harvesting represents only one component of production
cost. Some ventures claim productivity greater than 10,000 gallons of oil per acre per
year, although current maximum yield is more like 2,000 gallons per acre. Other
ventures claim patented, genetically modified algae is the solution for higher
productivity. But this raises the fear of releasing fast growing GMOs into the
environment, and will likely trigger legal challenges and environmental roadblocks.
Ventures that promoted and bet on a simple biofuel business model based on short
development time to produce low cost biofuel are burning through capital and are still
many years away from commercialization. They will be scrambling for another round of
funding, or may be hoping to be bought out by an oil company. Or, they may be moving
toward a more complex business model.
How ventures can harvest from the third algae bloom.
Ventures wanting to commercialize algae biofuel, should be asking what business
model, value chain and product development along the way will produce revenue
streams to buy time to scale and learn how to reduce costs?
This means commercializing other algae products and services to develop a scalable and
sustainable business model. From environmental services, revenue streams may include
CO2 and pollution mitigation, wastewater treatment, biomass and waste heat for
generating electricity and even carbon offsets.
From algae products, revenue streams may include algae oil and lipid supplementation
in animal and human feed, like omega 3 oils, animal feedstocks and supplements,
human food ingredients and food supplements, extracts for pigments, fine chemicals
and bio-plastics, nutraceutical, pharmaceutical and medicinal products. All have higher
value than commercial biofuel and represent smaller but substantial markets.
Finally, developing commercial biofuel will lead to innovations and surprising
breakthroughs not even identified yet. Ventures that survive long enough to discover
new products and technologies will evolve new business models.
Algae biofuel ventures that survive the next 5 years will be asking this question: Now
that we have made our big investment in algae systems, if we can give our investors a
better return selling higher value algae products and services, why should we chase
after low value biofuel? The winners in the third algae business bloom will grapple
with this question and come up with new answers.
Based on algae blooms of past decades, a few ventures may ultimately succeed in
commercializing algae biofuel. Some of those who dont could become winners anyway.
They can become successful using their biofuel investment to innovate new algae
technology, products and services. ###

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 Biofuels From Algae? How Ventures can Harvest from the Third Great Algae Bloom

Robert Henrikson began his green business career cementing pvc pipes at the first Proteus
algae ponds in Californias Imperial Valley in 1977. Over the next 32 years, Robert has been an
entrepreneur in such diverse fields such as algae, bamboo, carbon and natural resources. He is
an advisor and consultant to companies and non-profit organizations on product development,
branding, sales, marketing and media strategy, developing business and financial models for
the green economy for our health, our society and our planet. He currently advises several
algae companies and investors in algae business ventures.
In 1981, Robert became President of Earthrise, the pioneering
algae company and founded Earthrise Farms, the world's largest
spirulina farm, with Dainippon Ink & Chemicals of Japan. In the
1980s, he developed the health food retail, direct mail, bulk
wholesale and animal feed markets. In the 1990s, he established
distributors in 30 countries, making Earthrise the world's most
famous algae brand www.earthrise.com.
He has written numerous articles and made presentations around
the world. Through his communications company, Ronore
Enterprises, he authored Earth Food Spirulina, translated and
published in seven languages, 198999, online at
www.spirulinasource.com.
Robert was CEO of Bamboo Technologies during startup 2003-08. Bamboo Technologies is the
world leader in international code certified bamboo building technology, first to build
engineered, manufactured bamboo homes in the USA, developing the Bamboo Living Homes
brand to advance bamboo as a green alternative for buildings around the world. Robert
handled overall direction, operations, marketing and financial management, and produced
catalogs, videos, DVDs and website www.bambooliving.com.
Robert created the International Bamboo Building Design Competition to promote bamboo
building design to architects and builders www.bamboocompetition.com. In 2007 he published
Visionary Bamboo Designs for Ecological Living www.bamboosun.com.
A documentary filmmaker, he has produced the Folding Time and Space DVD for Burning Man
for the past 5 years www.folding-time.com, www.panmagic.com. He stewards a botanical
garden in Hana, Maui www.hanapalmsretreat.com. Recently Robert has been involved with his
family owned Wild Thyme Farm to sell the first forest carbon offsets in the Pacific Northwest
into the US voluntary market in March 2009. www.wildthymefarm.com.
BA, Princeton University.
Robert Henrikson roberthe@sonic.net. PO Box 909 Hana HI 96713 USA. 808 264-8184.

2009 Robert Henrikson roberthe@sonic.net www.spirulinasource.com 4