March 12, 2011 {authors} {/authors}

A farmer’s perspective on growing…algae

An interview with Ben Cloud of Phyco BioSciences

{authors} By A farmer’s perspective on growing…algae {/authors}

Ben Cloud had a radical idea. Coming from an agricultural background that included 17 years as president and CEO of Western Agri-Group—a diversified farming enterprise comprising 4500 acres and 250 employees producing, packing and shipping dates, cotton, grain, melons, alfalfa and tilapia—he began looking at growing algae in the open, from a farmer’s perspective. He asked himself what systems and efficiencies a farmer would want to have in the new age of algae as an agricultural energy crop.

Ben’s intellectual journey led him to what is now known as the Super Trough system, a farmer-friendly approach to algaculture that he introduced through XL Renewables, his renewable energy innovation company focused on the large-scale production of algae biomass.

Phyco BioSciences, Inc. was evolved in 2009 by XL Renewables to carry out the commercialization plan Ben had been developing since entering the algae development business in 2006. The principal driver of the company’s strategy, Ben moved from COO to CEO in 2010. In September 2010, Phyco announced an agreement with China Biological Engineering Limited of Hong Kong, China, to develop projects in the Peoples Republic of China.

We visited with Ben at his pilot site just outside of Phoenix to see the Super Trough in action and find out more about how it all came together and where Phyco is heading from here.

When did you get interested in algae?

In 2005 I was part of a six-man group that formed XL Renewables, Inc. to develop an integrated biorefinery project in western Arizona. As word got around about our biorefinery project, a friend of mine named Steve Irwin, a water chemist from the Palo Verde Nuclear Plant, contacted me to say I needed to consider algae as an alternative to corn as a feedstock for the biorefinery. I wasn’t interested in the idea at first, but Steve persisted and finally got me to understand the potential of algae. Then I jumped in with both feet and saw great possibilities for an expanded algae industry with an ultimate goal of biofuels.

We had to put the biorefinery project on hold, but this led us to develop the initial production concepts for the Super Trough System, which we believe is an advance over open pond or paddlewheel raceways for large-scale production.

From the beginning, my view of large-scale algae production was to follow an agricultural model. My past experiences, especially with drip irrigation, lined up with many of the challenges in doing this. Also, I felt we had a niche as the rapidly forming algae development companies were following a VC-backed bio-tech model of development. At the first ABO Conference in San Francisco I spoke about this as agriculture.

How did the Super Trough System evolve?

In late 2006, I asked Souren Naradikian, PE, and Steve Irwin, a chemist, to join me in developing an initial design. Souren is an agricultural engineer who I worked with for 10 years and is now a wastewater engineer for the City of Tucson. It was Souren who suggested that we use an oxidative ditch design originally. In the early 1990’s Souren and I had co-invented a dual chamber drip tape that had an emitter for aeration and another one for water.  With algae, we immediately saw the aeration and nutrient distribution concept as key.

The next step was to design a liner system that incorporated the emitter system for CO2 and nutrient distribution. This is where our IP is focused for our system. We use strong, yet lighter weight liner material that can be installed mechanically to lower the installation costs. Using proven agricultural rather than construction type methods for installation lowers the cost.

Without going into great detail, we have ended up with an efficient and economical algae production system that optimizes the growing conditions. It offers effective operator control with uniform and rapid distribution of a CO2 enriched airstream and crop protection inputs with nutrients to reduce the stresses and increase yield potential. When dealing with 40-acre fields, we are able to respond quickly to issues that arise, and the system has built-in tools to handle most situations.

Where did your senior staff come from?

When we established our pilot facility in 2007 we hired Michael Bellefeuille, a biologist with significant algae experience who had worked on the Greenfuels project with Arizona Public Service. Mike received his masters’ degree from Arizona State University working with Dr. Sommerfeld and Dr. Hu. He operated the early versions of the trough system and helped us evolve it.

Once we felt confident that our production system could lower the capital and operating costs, we looked to get the most experienced algae farmers on board. There are very few individuals in the world who have produced algae on farms greater than 100 acres. We have two of them—Dr. Ira (Ike) Levine and Ron Henson. It means a lot to us to have their expertise on board.

What is your business model at Phyco BioSciences?

Phyco is a producer, processor and marketer of algae biomass for food, feed and fuel. That pretty much says it all. We see algae biomass as a food and industrial crop with many market applications, similar to the major industrial crops of corn and soybeans.

We spent a lot of time in 2008 and part of 2009 evolving our business plan and model. There were some key questions we had to answer. How could we deploy our production and harvest platform? Develop products and meet supply chain requirements? Scale production rapidly to meet market demand? Finally, where should we put our emphasis?

The answers became clear when we started to focus on risk factors and capital requirements and, most important, capital efficiency. The model is agriculture: basic production, processing and marketing.

As demand grows we will use a specific program with agricultural producers for rapid scaling of our capacity. The Phyco Producer Program is the heart of our business plan moving forward. It provides the framework for project development and operations. It also establishes the contractual relationship between the producer and Phyco. The Program is designed to increase the income potential for producers and lower the risk, and also to provide a stable supply of algae biomass for Phyco processing and marketing. The objective is to meet the supply chain needs of customers.

AIM: Does using existing farmland for the systems compete with using arable land for food crops?
Well there are always critics, but that is usually based on a lack of understanding, in my opinion. A farmer doesn’t necessarily know if their biomass will be used for fuels or not. That is for the processer to decide based on market conditions. Does a soybean producer know exactly what his soybeans are going to be used for when he plants them?

Diversified farming enterprises in the Southwest desert areas are rather large and significant businesses that generally range from $5 million to $25 million in asset value. As an example, if a farmer is operating on 2,000 acres, there is typically a significant portion of the farm that is considered marginal or is actually sitting idle due to poor water quality or soils. So, improving this marginal land to produce algae biomass may be the highest and best use. That is for the landowner to decide. A 40-acre to 160-acre algae enterprise hits the sweet spot, in my opinion, for many of these operations.

Where is Phyco’s development capital coming from?

We are not a VC funded company. Instead we have relied on angel and strategic investment to get us here. Getting our production platform and business plan in solid form and reaching positive cash flow has been critical to being properly valued for capital.

Now that we are there, we are only looking for the best possible contract producers and strategic partners that support our objectives of producing algae biomass for food, feed and fuel.

Our deal with China Biological Engineering Limited (CBEL) is exactly that—a strategic relationship that moves Phyco to positive cash flow now.

How did Phyco begin developing projects in China?

I was approached by Mr. Lie Djiauw, Ph.D. during an NAA conference in Houston, in 2009. He had been looking at various concepts to produce algae and concluded our Super Trough System had the design capability to be successful, especially in China. Mr. Djiauw, a retired polymer scientist from Shell Oil, is a representative of a Hong Kong based company called BiofuelsHK and he has been developing renewable energy projects and looking to produce algae biomass as well.

The BiofuelsHK CEO is Eric Tso, a longtime friend of Mr. Djiauw, who while being educated and doing business in the US was an executive in the Chinese oil industry for many years. Mr. Tso had made it his mission to develop renewable energy in China and is passionate about reducing CO2 emissions as well. Mr. Tso invited our team to tour prospective sites in China.

BiofuelsHK CEO Eric Tso (left) and China Biological Engineering Limited Chairman, Mr. Zheng (center) meet with Ben Cloud to structure the deal that brought Phyco into China.
The Phyco team of Dr. Ike Levine, our Chief Science Officer, and Ronald Henson, Supply Chain Manager, and myself went on the trip. Ike had been there before and was able to see old friends who were early on algae researchers. Both Ike and Ron have been in the algae industry for over 30 years and I fully respect and rely upon their experience.

We met many officials and looked at possible project sites. These officials represented the Provinces and regions where the projects will be located, and they were very positive about cooperating with the development.

While touring the prospective sites and participating in meetings organized by BiofuelsHK, we were very impressed by the commitment and dedication to developing a Chinese algae biomass industry and the obvious local market opportunities.

All of this led to the negotiation of a deal that has opened the door to our business in China. BiofuelsHK formed CBEL with $5 million dollars to complete the initial two projects. A third project is now under negotiation by CBEL with other Provincial government officials. CBEL has purchased an equity stake in Phyco and in addition, we own a similar piece of each project developed by CBEL in China.

Phyco will supply the production system components and support services and market the algae biomass for non-biofuel markets. I credit Mr. Tso and the CBEL Chairman, Mr. Zheng for helping to structure a deal that was workable for all of us. We have been treated with respect and honor by the team from CBEL and we are motivated to perform.  As a partner with CBEL in China we see this as a long term and potentially massive opportunity.

Where is the algae industry going, in your opinion?

Commercial production will take a serious step forward in 2011. The market place is ripe with opportunity to expand existing uses of algae biomass and also create significant new opportunities. The long awaited new wave of commercial production is beginning and will have a very positive effect on market expansion and moving the cost of production downward to a new level. Of course there will be some winners and losers in this process, but it is time to get the show on the road.

I believe the algae industry is going to move from a technology focus to a project development focus in the next couple of years. That will bring new people, capital and expansion to the industry. Project developers will seek production technology and market access from a few key providers, like Phyco.

Amazingly, we are yet to see conclusively if some of the “secret” technologies will have any impact on increasing yields and lowering costs down to a biofuels level. We can only go so far with production technology as the real weight is carried by the algae cultivar developers, in my opinion. This is actually a slow process. In agriculture, it takes years of commercial production for yield averages to emerge, and this process is just now beginning with new advancements.

Regardless of the biofuels potential, I am very bullish on the future of the algae biomass industry and the use of algae as a food and industrial crop.

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