The Anticipated Market for Feedstock Sugars Takes Root

A few months ago, Doug Cameron, an analyst and scientist with Piper Jaffray, predicted that we could start to see the evolution of a cellulose industry. Simply put, biofuel companies are often either skilled at making feedstocks and sugars or at producing fuel from sugars and plant matter, but not both. Unfortunately, because of the nascent stage of the industry, most are forced to do both.

The industy appears to be taking a step toward specialization and segmentation today. BlueFire Ethanol, which has been trying to produce ethanol out of landfill waste, is sending sugars to Solazyme, one of the big algae fuel companies, for testing. BlueFire has had trouble getting its own ethanol plant off the ground, but it does have working knowledge about producing sugars. Solazyme is different than most other algae companies. Rather than grow algae in bioreactors – large plastic bags filled with microbes and water – it puts specific species of algae in fermentation vats and feeds them sugars. When the algae are fat and full grown, it squeezes the oil out of them. Solazyme has expertise in biology and oil production. Growing food for algae, however, is not part of its long-term agenda. By working with Solazyme and others, BlueFire can potentially carve out a revenue stream while Solazyme can offload a function on its way to producing fuel.

Granted, it is only a test right now so it's hard to say what will happen, but an interesting development. If anything, Cameron can feel vindicated.

Venture capitalists and some others have been critical of Solazyme's "feed 'em sugar" process because it adds feedstock costs. (Here's one of the first articles on that debate between sunlight and fermentation for algae.) Solazyme for its part has said it has tried growing algae with water and that it doesn't economically make sense. Solazyme got an inadvertent vote of confidence last week when Greenfuel Technologies, one of the leading bioreactor advocates, went under after spending $70 million in VC funds. For more on what Solazyme is cooking up, check out this video.