April 22, 2008: 5:56 AM EDT
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The search for the perfect fuel (cont.)

By David Stipp, contributor

Of course, there are always entrepreneurs poking into odd corners; what's changed recently is that fuel from algae has proved credible enough that big business is also getting intrigued. Last fall Chevron formed a partnership with federal researchers to study algal fuels. In December, Royal Dutch Shell (RDSA) announced that it will build a pilot algae-growing facility in Hawaii with Honolulu-based HR BioPetroleum. A Honeywell (HON, Fortune 500) unit has developed technology to process algal oil into jet fuel. Boeing (BA, Fortune 500) and Raytheon (RTN, Fortune 500) are also investigating algal fuels.

An old idea, new again

The idea of using algae for energy is hardly new. Beginning in the late 1970s, scientists at what is now the National Renewable Energy Laboratory, or NREL, in Golden, Colo., spent 17 years investigating the possibilities. In 1995 they gave up, concluding that algae-derived biodiesel fuel would cost too much. The program was terminated in 1996. So algal fuel seemed a lost cause when Berzin, then a postdoctoral researcher at MIT, ran across the NREL team's final report. An expert on cell-culturing systems, he couldn't resist tinkering with novel bioreactors to grow algae. Before long, he was hooked; in 2001, a year that gas prices topped out at $1.66 a gallon, he launched GreenFuel.

Which raises an issue of great complexity and consequence: Was he nuts?

You can't look very far into this question without running into a curiously strident set of GreenFuel bashers. Flailing away in blogs and other forums, they argue that its strategy doesn't even make enough sense to qualify as hubris.

"It's bizarre, it's totally absurd," insists John Benemann, a biofuels consultant who worked on the NREL algal fuels project. To understand Benemann's view, as well as his vehemence, it helps to know that his team at NREL rejected bioreactors like GreenFuel's on the grounds they would be too expensive. The NREL researchers endorsed the use of open-air ponds, which is what almost all commercial growers of edible algae, such as Spirulina, use.

Berzin dismisses this conclusion. Growing algae in ponds, he argues, is limited because algae are less productive in the cold. Water must be continually replenished in the heat, and in the open, special oil-rich algae for fuel are susceptible to replacement by hardier, indigenous scum. In short, argues Berzin, while ponds may work in some places, bioreactors should work in many more.

That logic failed to wow potential investors during GreenFuel's early years. "We kissed a lot of frogs," says Holly Flesh, vice president of business operations and a co-founder. In 2004, GreenFuel found a prince, Access Industries, a New York investment firm that gave it $2.1 million in seed capital. Berzin, a brash, buoyant spinner of ideas, went right to work, installing a bioreactor on an MIT rooftop that became a big, green media magnet. Stories noted that the system captured up to 82% of the CO2 in flue gases from an MIT power plant fired by natural gas.

By mid-2006, GreenFuel had hired energy-industry veteran Cary Bullock as CEO, installed pilot projects at two utilities' power plants, and secured $17.8 million in venture capital. In November 2006, GreenFuel announced that it had recycled CO2 emissions at Arizona Public Service's Redhawk power plant into algal biomass for making both ethanol and biodiesel - a first.

In early 2007, GreenFuel installed a bioreactor at the same plant that was 100 times larger than its earlier test models. That bioreactor was meant to launch GreenFuel toward huge commercial systems. Instead, in an episode reminiscent of "The Sorcerer's Apprentice," it nearly cratered the company.

The system worked amazingly well at first, growing algae in the Arizona sun much faster than anticipated. "We thought, Oh, yeah!" says Berzin. "But immediately after, we thought, Oh, no!" The algae were growing faster than GreenFuel's team could harvest them. The overabundant algae clogged the system and began dying, forcing the team to shut down the bioreactor.

Facing headwinds

While fixable, the setback was a major blow, and not the only one. A few months before, GreenFuel had won a major contract to supply its technology to a biofuels developer in South Africa, but the company could not keep its promises and ceased operations in a swirl of fiscal controversy. Running low on cash, GreenFuel had hoped to win another round of venture funding in mid-2007 by showing that its Arizona scale-up was on track. Clearly it wasn't. Worse, during the week of the Arizona debacle an outside consultant reported GreenFuel's projected harvesting system would cost more than twice as much as expected. The bashers were beaming.

At a tense board meeting in June 2007, CEO Bullock told GreenFuel's main backers of the problems. In short order they cut about half of GreenFuel's 50-person staff and installed Metcalfe, a director, as acting CEO. Existing investors agreed to grant a $5.5 million bridge loan to keep the company going. Bullock stayed on as the marketing chief, racking up letters of intent for several major deals.

Meanwhile, Metcalfe reorganized the startup's technical side to improve productivity and ensure rigorous vetting of new designs. His leadership gives GreenFuel instant credibility. While many biofuels players are led by visionaries who dream of changing the world, Metcalfe has already been there and done that. Known as "the king of connectivity," he co-invented the Ethernet, a key enabler of computer networking, in the 1970s. He then went on to found networking pioneer 3Com and to win the National Medal of Technology, the nation's top honor for technical innovation. Under his steadying hand, GreenFuel has developed a new bioreactor- the one in Cambridge- that is simpler and cheaper than its predecessors.

Metcalfe says the company has now completed five of seven goals he set for its recovery. The remaining two, hiring a new CEO and securing a third venture-capital round, are on track. The company is negotiating deals that could provide funding to scale up several algae-growing systems to commercial size within a few years.

Has GreenFuel finally cracked the algae code? That, of course, remains to be seen. But the economics are making it look less like science fiction and more like a business in the making. With diesel costing nearly $4 a gallon- a third more than a year ago- the gap is shrinking between the projected costs of algal fuels and the real price of the fossil kind. Another few years at this rate and algal-fuel developers will no longer be worrying about making their products cost-competitive but about expanding fast enough to meet demand.  To top of page

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