Fermentation is the most compelling growing medium from a cost of production perspective.  However, at what scale, or level of capital investment, can VC’s justify entering into this space?  Go for it Solazyme!

Respectfully, I believe the details of your story are incorrect.  I may be wrong, but the way I read the contract award, Solazyme is producing 1,500 gallons of fuel for a price of $223,500.  Further, it appears this fuel will be used as an anti-oxidant (additive).  That comes out to $149 per gallon by the way.

Apparently the contract was awarded last week 23 Sep 09.  To view all the details go to fbo.gov and type the solicitation number in the search field.
The solicitation number is:  SP0600-09-R-0704
The contract number is: SP0600-09-D-0518
Sustainable Oils LLC won the major contract on that solicitation, number SP0600-09-D-0519.  They will produce 40,000 gallons with an option for 150,000 gallons.  It appears that 1,500 gallons will be mixed with 188,500 gallons of other fuel (Sustainable’s camelina oil?)  I still have to research that.  There’s a link to a Power Point presentation in the documents that alludes to that.  If my suppositions are correct, that means that Solazyme’s 1,500 gallons added to 188,500 gallons equals about an 8 to 1000 gallon ratio of algal fuel to camelina oil.
The press release from the DESC website is also misleading and says that Solazyme was issued an $8.5 million contract for jet fuel…no mention of additive.  The actual award is for 1,500 gallons, not 20,055.  This appears to be….incorrect…yes that’s a nice word.  It’s on their home page under News and Events:

http://www.desc.dla.mil/

I’m still researching this award and will do a FOIA request to DESC on some of these questions.

This is still a mystery!

The contract award for the 20,000 gallons of F-76 fuel is:  SP470109C0040
Now there will be THREE hits on Google if you type in that reference.  The first hit, Recovery.gov, shows the contract awarded to Solazyme for the following:

Amount: $3,105,022
Award Description: TAS::97 0401::TAS RECOVERY - THIS MODIFICATION IS ISSUED TO OBLIGATE AMERICAN RECOVERY AND REINVESTMENT ACT (RECOVERY ACT) OF 2009 FUNDS FOR THE PURPOSE OF SUPPORTING A LAWRENCE BERKELEY NATIONAL LABORATORY PARTNERSHIP WITH THE UNITED TECHNOLOGIES RESEARCH CENTER IN RESPONSE TO THE DOD¿S ENVIRONMENTAL SECURITY TECHNOLOGY CERTIFICATION PROGRAM. WORK INVOLVES THE INSTALLATION, TESTING AND DEMONSTRATION OF A SIMULATION-BASED PERFORMANCE MONITORING SYSTEM AT THE NAVAL FACILITIES ENGINEERING CENTER AT PORT HUENEME AND AT MCGUIRE AFB.

No mention of fuel.  The other web hit was to a gigantic spreadsheet that showed how stimulus money was spent. For Solazyme there were three lines:

1.    The $223,500 award for 1,500 gallons of algae fuel ( for contract SP060009D0518)

2.  A n amount of zero on that same contract (SP060009D0518)

3.  An award of $3,105,0222 for contract (SP470109C0040) for Base + exercised options

There is a total for Base and All Option Values that equals $8,713,837. Subtract the $223,500 from $8.7 million and that is damn close to $8.5 million, which is the advertised value of the contract for 20,000 gallons of F-76 fuel.  Usually ALL DoD contracts valued at $5 million or more are posted on Defenselink.mil, but this one isn’t there.

This is very curious. WORK INVOLVES THE INSTALLATION, TESTING AND DEMONSTRATION OF A SIMULATION-BASED PERFORMANCE MONITORING SYSTEM AT THE NAVAL FACILITIES ENGINEERING CENTER AT PORT HUENEME AND AT MCGUIRE AFB.

Not fuel!