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Solazyme Crosses the Rubicon

Jim Lane

Solazyme logo.pngNext-gen renewable oils producer achieves first linear scale-up to 500,000 liter fermenters — clears path for large commercial production volumes.

In biofuels, the “ethanol blend wall” gets a tremendous amount of attention. This is the restriction on ethanol blending in gasoline to (today) 10 percent. It limits overall US ethanol distribution, and vexes ethanol producers and corn growers. But that’s only the second most critical wall.

Over in advanced biofuels — which are expected to provide 21 billion of the 36 billion gallons of renewable fuel targeted in the Renewable Fuel Standard by 2022 — there’s the ferment wall.

What is the ferment wall? To date, no next-generation producer had successfully achieved linear scale-up in 500,000 liter (or larger) fermenters. Now, it’s simply impossible for fermentation-based technologies to affordably produce fuels and chemicals in small fermentation tanks — its way too much capex, too much opex to produce, say, 10,000 liters at a time.

So it is big news that Solazyme (SZYM) has announced the completion of multiple initial fermentations in 500,000 liter fermenters at Archer-Daniels-Midland Company’s (ADM) Clinton, Iowa facility — about four times the scale of the vessels in Solazyme’s own Peoria, IL facility.

According to the company, Solazyme achieved commercial scale production metrics, exhibited linear scalability of its process from laboratory scale, and demonstrated the ability to run at this scale without contamination. Solazyme is initially targeting annual production of 20,000 metric tons of oil starting in early 2014 at the ADM facility, with targeted expansion to 100,000 metric tons.

Next across the river – Gevo and Amyris?

It was not originally expected that Solazyme would be the first next-gen company to break the barrier. Both Gevo (GEVO) and Amyris (AMRS) had built up enough of a lead in the race that they were expected to reach linear scale-up earlier this year, in Gevo’s case, and late last year at Amyris.

Amyris began its attempt at linear scale-up to 200,000 fermenter scale in June of last year, after installing two large fermenters at the Biomin facility, in Brazil’s Sao Paulo state. As Daniel Grushkin at Fast Company memorably recalled, “The plant, which began running in June 2011, was beset with problems. Sometimes the process worked as it had in the California labs. Other times, the enormous tanks frothed with the carcasses of exploded yeast cells.”

By February, we reported that “Amyris announced major changes to its financing, strategy and near-term production targets, disclosing that it has produced only 1 million liters of biofene to date at three tolling facilities, compared to a 2011 target of 9 million liters originally set in April 2011, and reduced to 1-2 million liters in an update later in the year.”

In July of this year, Gevo went for it, targeting scale-up in 1,000,000 liter fermenters at its newly retrofitted facility in Luverne, MN. At first, all seemed well. “We are pleased with the progress to date in our initial startup campaign, CEO Pat Gruber, reported. “We’ve shown that we can successfully ferment isobutanol in large (250,000 gallon) commercial fermenters, isolate the product and get it into tanks and railcars.”

But by September, it was clear that, although the process works well, linear scale-up was not happening and production rates were behind expectations. Late in the month, Gruber announced “Early indications are that, while we are making significant progress towards economic production levels, we will not achieve our desired year-end run rate – instead we would expect to achieve that during 2013 — and ceased isobutanol production at Luverne until early 2013 while it fixed its process.

Cracking the 100,000 liter barrier – LS9, Solazyme

Some companies had already cracked the 100,000 liter barrier. In Florida this fall, LS9 announced the completion of its first production run of fatty alcohols at its new facility in Okeechobee. The first run at 135,000 liter scale produced several tons of fatty alcohol with “excellent replication of technical metrics”.

“We are very pleased that our very first run at 135,000 liter scale went so well,” LS9 CEO Ed Dineen said at the time. “We plan to perform additional fatty alcohol runs to demonstrate the robustness of our technology platform and then switch to diesel fuel and ester chemical production to further demonstrate the production optionality of the technology.”

And Solazyme, itself, had achieved linear scale-up in its own 125,000 liter fermenters in Illinois.

Reaction at Solazyme

“Working with ADM’s world class fermentation team to achieve commercial scale operations at the ADM facility shortly after announcing the partnership exhibits our ability to rapidly and successfully scale in large commercial fermentation facilities,” stated Peter Licari, CTO, Solazyme. “Solazyme is currently developing commercial facilities in the US, France and Brazil, and with these runs we have now achieved linear scale-up of over 70,000-fold from our labs.”

De-risking the company — and the sector?

In the case of Solazyme — and all next-gen producers — concerns about scale-up have been affecting the stock price. Investors and equity analysts have also expressed concerns about the absence of sufficient offtake deals for the company’s tailored renewable oils – but scale-up has been a near term issue.

As Piper Jaffray’s Mike Ritzenthaler wrote a month ago, “Although sector valuations have compressed substantially, and shares of SZYM in particular are down ~55% since early April, we still believe more downside lies ahead for shares…our rating and price target reflect our view on four key factors: building capacity ahead of firm demand (disallowing lofty margin projections), the relative lack of control over growth drivers, the potential for scale-up problems, and the lack of visibility or clarity of co-product value or offtake (which is important for lowering net production costs).”

ADM taking equity in Solazyme

An interesting twist, buried in the latest news from Iowa — as part of the contract arrangements between Solazyme and ADM, the companies have agreed that certain payments can be funded with Solazyme equity, rather than cash. , Solazyme has the ability to fund certain payments with equity rather than cash.  To facilitate the equity payments, the Company filed a registration statement with the SEC, writing:

“In connection with the strategic collaboration agreement we entered into with Archer-Daniels-Midland Company (“ADM”) in November 2012, we agreed to grant ADM a warrant to purchase 500,000 shares of our common stock…In addition, under our strategic collaboration agreement with ADM, we will pay ADM annual fees for use and operation of certain production facilities, a portion of which may be paid for in our common stock.”

The bottom line

500,000 liters is a big deal – it represents production at the kind of scale that supports moving down the cost curve from markets in exotic, high-priced oils into the world of commodity fuels and chemicals where the margins are tight but the pools are vast. Last step on the journey? Hardly.

But a momentous crossing of the industry’s Rubicon – that is, widely contemplated, critical for all that follows, hitherto not successfully achieved. Sure, it’s that. Now begins the march on Rome.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.



was posted on AltEnergyStocks.com.


       

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