Fueling Our Future
Paul Woods and Algenol plan to turn algae into sustainable—and cheap—energy.
Algenol Founder, Chairman, CEO and President Paul Woods
Paul Woods was just 38 years old when he retired to Barbados and Florida in 2000 after a successful business career in natural gas. The Toronto native had built, run and sold two private natural-gas distribution companies, becoming a multimillionaire along the way. Life on the beach, however, didn’t satisfy the restless Woods for long. In the mid-2000s, after the price of oil soared above $50 per barrel, he decided to return to an idea he had in the 1980s when he was a genetics student at University of Western Ontario: making ethanol from algae.
Now, in a field off Lee Road in Fort Myers, Woods is baking algae in 4,000 plastic bags under the sun. This is the experimental biorefinery of Algenol Biofuels, the company Woods founded with two other semi-retired former CEOs, Ed Legere and Dr. Craig Smith, in 2006. Backed by a deep-pocketed Mexican investor and helped by a team of molecular biologists and engineering Ph.D.s (now numbering 71), the trio has worked for eight years to perfect the technology that Woods invented as a student (see graphic). By June of next year, if all goes well, Algenol will start to produce ethanol, gasoline, diesel and jet fuel on a commercial scale in central Florida—for less than $1.30 a gallon. “We are going to supply fuel to Florida customers at below market prices,” Woods, now 52, says. “There’s no doubt about it.”
He is the epitome of a crusading entrepreneur. In the eight years since founding Algenol, Woods has had run-ins with a former partner, Dow Chemical Co., and more recently with Lee County Commissioner Cecil Pendergrass. When Pendergrass expressed doubts in February that the company had met its requirement to hire 108 full-time employees after receiving a $10 million incentive grant from Lee County, Woods demanded a public apology from the Lee County Commission to Algenol and its 127 full-time staffers. (He has 139 employees now, including part-timers.) He also threatened to ditch his mulled plan to build a plant in Lee County to manufacture the special plastic bags he needs for his operation—a move that would cost the county a potential 60 to 100 jobs.
Lee County Commissioner Larry Kiker is counting on Algenol building the plant here. “They are expanding here in Lee County. There will be more jobs,” he says. “We’re glad they have exceeded all their requirements that were questioned. To me it’s time to do business, and that’s what everybody is most interested in.”
Despite his combative streak, the Algenol CEO has managed to attract a far-reaching array of supporters over the years. The company’s two major shareholders, besides Woods, are the Gonzalez family of Mexico City and Reliance Industries of Mumbai, India. Alejandro Gonzalez and his family own technology, energy and industrial interests in Mexico and last year sold their remaining stake in Grupo Modelo, maker of Corona beer, to Anheuser-Busch InBev for $20 billion. Reliance Industries is an Indian energy, chemicals and textiles giant with revenues of $68 billion last year. Its chairman and largest shareholder, Mukesh Ambani, is widely considered to be India’s wealthiest man. Together, Woods says that he, the Gonzalez family and Reliance have invested more than $250 million in private capital, and much more investment is on the way: The soon-to-be-built production facility in central Florida will cost a total of $1.3 billion over time.
To get to commercial scale will be no easy feat. To make ethanol, Algenol combines algae with carbon dioxide and salt water inside specially designed, 10-foot-wide plastic bags that hang on racks like file folders in the sun for 30 days. For its commercial facility, the company plans to acquire 5,000 to 10,000 acres of non-arable land next to natural gas-fired power plants that emit carbon dioxide. Algenol has been deep in negotiations with major utilities in Glades, Hendry and Polk counties. The plan is for Algenol to pipe carbon dioxide from two power plants directly into its production unit, which Woods aims to build by next June. Starting with 100 acres, Algenol would gradually expand output, adding more racks of algae-filled bags each year. “It’s a multi-phased project. Ultimately, we are going to try to build more than 10,000 acres,” Woods says. (On each acre will be racks of 3,600 plastic bags.) “The goal … is no less than 100 million gallons of the four fuels [a year],” Woods says.
To sell the fuel, he will most likely make an agreement with an established gas retailer but only on the condition that it passes any savings onto vehicle owners who pull up to the pump for less expensive Algenol-made ethanol, gas or diesel. He is already in discussions with several fuel retailers and hopes o sell some of his existing product, made at the Lee Road refinery in Fort Myers, this year. If necessary, Woods says Algenol will sell fuel directly to Florida consumers from pumps it will brand itself.
The entire process will require dozens of permits and licenses from state and federal agencies such as the Florida Department of Agriculture, the Environmental Protection Agency and the Bureau of Alcohol, Tobacco and Firearms. Three full-time staffers are dedicated to working on government affairs and certifications, plus legal advisers.
Algenol’s algae, which are genetically enhanced to improve its ability to make ethanol, have already undergone extensive tests to ensure that it is safe if it spills into the ground or water supply in the event of a hurricane. The tests by Florida’s Department of Agriculture and an outside lab have confirmed that the algae are neither toxic nor invasive.
Woods spends seemingly endless hours each week explaining his technology and goals to outsiders—politicians, regulators, even schoolchildren. “The biggest challenge is that every aspect of the business here has never been done before so we are constantly talking to people who have no damn clue what we do,” Woods says. It’s no secret that Algenol is operating a sophisticated molecular biology lab (Woods calls it “the most advanced lab in the world”) in Fort Myers. For some people, the idea of white-coated scientists working with genetically modified algae in labs may conjure up visions of Hollywood sci-fi horror flicks.
That’s why Algenol has pursued an open-door policy. “Our public outreach has been huge for the company. That was driven by Paul,” says Legere, 51, co-founder and executive vice president of the company. He is responsible for prototypes and getting production processes up and running at Algenol. Earlier in his career, he was CEO of Peregrine Pharmaceuticals, a California pharmaceutical manufacturer. “You’ve got to be proactive. You’ve got to get out ahead of everything and give people time to understand what you do,” Legere adds.
Algenol’s own deadlines will be tough for the company to meet. But its top executives agree Algenol has a chance to pull it off. “You have to have an aggressive agenda, make the right decisions and be prepared to adapt. … By doing it that way you find that you can achieve at [higher] levels than if you had started with more modest goals. We are not afraid to challenge ourselves and the organization,” says Smith, 68, the third cofounder. He was a medical doctor and clinical researcher who taught at the Johns Hopkins School of Medicine before a business career in pharmaceuticals. His final job before semi-retiring was CEO of Guilford Pharmaceuticals in Baltimore, which he cofounded. At Algenol, Smith says he has been responsible for “shepherding the technology and fostering good relationships between the engineers and biologists and building management systems and infrastructure to support very ambitious high-tech goals.”
Building the Company
How did Woods pull together this high-powered team of executives, investors and researchers? You could call it a mix of determination, serendipity and smarts. After inventing his technology, which he calls “direct to ethanol,” as a student in 1984, Woods spent about five years trying to get it off the ground. He spoke to a few companies but they weren’t interested. Instead, he raised about $200,000 from family and friends and paid for scientists at the University of Toronto, Dr. John Coleman and Dr. Ming-de Deng, to continue research on the technology.
In 1989, Woods launched his natural gas career. His business success in the then-recently deregulated Canadian natural gas industry funded more research into algae and eventually paid “hundreds of thousands of dollars of patent bills,” he says. A scientific paper on the technology was published in 1999 and the U.S. finally awarded patents in the early 2000s. European, Australian and Mexican patents followed. But in the late 1990s oil was selling at less than $20 a barrel and climate change was not top-of-mind. The ethanol project simply wasn’t viable. “Looking back, the timing was all wrong for Algenol,” Woods reflects. “This has been a war of persistence. It really has.”
In 2006, with oil prices shooting up, Woods realized his idea finally had a chance. With global demand for energy growing, he figured it unlikely that oil would ever trade below $50 again.
By then, he had moved to Naples. He incorporated Algenol and shortly afterward met Legere. After a long career in pharmaceuticals, Legere had tired of the industry’s heavy regulation and left his job to look for a new technology business to explore. “I started looking into bioenergy. That’s where I really thought biotech could [offer] some answers to energy problems,” he recalls. In his search, he came across Woods’ patent on the Internet. “I read that patent and said ‘this is how you industrialize the manufacture of fuel using biotechnology.’” It took him about seven months to track Woods down by phone. (Legere was living in West Palm Beach at the time.) Legere first tried to buy the Algenol technology, but Woods refused. So they decided to team up and write a business plan. It was March 2006.
The next coincidence happened in May. Both Woods and Smith lived in Quail West in Naples, but they didn’t know each other. In 2006, Quail West was renovating the clubhouse and residents in the community were hosting dinners in their homes in the meantime. Woods met Smith’s wife at a dinner in her home—Smith was out of town—and told her of his interest in making ethanol. A few weeks later, Woods had a cocktail party in his home. He met Smith and asked him to read the draft plan he and Legere had written. “I thought it was terribly interesting from the scientific and biological perspective and from an environmental and world energy perspective,” Smith recalls. Within a few days, he had joined the team as a part-time consultant to help the company get off the ground.
That job turned full-time soon after, when Smith brought in a significant investor—Alejandro Gonzalez. The Mexican businessman knew Smith as non-executive chairman of a pharmaceutical company he had financially backed. When Smith approached Gonzalez, he stepped up as an angel investor for Algenol. “He provided a quite unusual and substantial source of capital to build the company. He understood immediately what we were talking about,” Smith says. At the start, Gonzalez and Woods jointly invested $70 million, Woods says.
The third big backer, India’s Reliance Industries, came later in 2011, with $90 million initially and more since. “They found us. They have people whose job it is to look at the competitive landscape and to find out the new and interesting technologies,” Woods explains. Since the 1970s, the Indian giant has expanded from textiles into polyesters, plastics, petrochemicals and oil and gas through a process it calls “backward integration.” As a shareholder, it has pushed Algenol to do everything in-house. Hence Algenol made the decision to invest $50 to $60 million to build the factory that will manufacture the specially designed bags for holding algae. After Reliance came on board, Woods ended Algenol’s collaboration with Dow Chemical. “The Ambani family just said ‘look there’s nothing that Dow is doing that we can’t do.’ And that’s correct,” Woods says. At the same time, he says he wasn’t happy with Dow’s work on film for an early version of the plastic bags. So Algenol paid $1 million to terminate the partnership.
Global Production Hopes
For this year, Algenol’s sights are set on its Florida production plans. If that operation gets underway next year, Woods predicts that his company would be selling significant amounts of fuel by 2016 and be “cash flow positive” by 2017. In the meantime, Algenol is dependent on the largesse of its shareholders. The Gonzalez family and Reliance Industries are continuing to support Algenol; in fact, both groups are planning ethanol operations in their own countries using Algenol technology. Woods has already shipped equipment to India for an Algenol-Reliance Industries joint ethanol project that is expected to be ready for operation in June. Mexico would come next.
Other projects are on the drawing board. Algenol is looking into setting up a production site in Arizona. And entrepreneurs active in Brazil and Israel have approached Algenol about setting up joint ventures. The Algenol technology is suitable for any climate that has plenty of sun, access to salt water and sufficient land. A plus for Israel is that a byproduct of Algenol’s ethanol production is fresh water: For every gallon of fuel, a gallon and a half of fresh water is produced.
For a Florida tech start-up, it all adds up to a lot of potential. Still, Algenol is not alone. “It’s a pivotal point for advanced biofuel. Several large commercial-scale plants are coming on this year,” says Brent Erickson, executive vice president for BIO, a Washington-based trade association for biotechnology companies. In New Mexico, Sapphire Energy is converting algae into “green crude” to make gasoline, diesel and jet fuel. In Vero Beach, Swiss-owned INEOS Bio is producing ethanol from yard, vegetable and municipal waste. Yet even if these companies and others produce hundreds of millions of gallons of biofuel a year, it will be a long time before they make a dent in the 140 billion gallons a year of gasoline used in the U.S., observes Nathanael Greene, director of renewable energy policy at the Natural Resources Defense Council in New York City. “Algae is promising, but it’s hard to do right,” he says.
Even if its impact is small, with its global backing from Mexico to India and potentially spanning Israel and Brazil, tiny Algenol has a chance to become an important bioenergy player on an international scale. Already, Algenol employs about 50 researchers in Berlin and has an office in Switzerland. “This is going to be a global corporation,” predicts co-founder Legere, who compares the fledgling bioenergy industry today to the biotech revolution years ago. “When the biotechnology revolution came through, big pharma companies didn’t understand anything [about] biology. They put big biological R&D programs into place and they all failed. They couldn’t invent products because they weren’t entrepreneurial,” he says. Nimble biotech companies like Genentech showed the way. (Eventually pharma giant Roche bought Genentech.)
Now, entrepreneurial bioenergy companies like Algenol are poised to show big energy giants the way to make money with alternative fuels, Legere believes. “We’re all focused on getting our technology to market. What happens then, well, lots of good things can happen,” he adds. Woods has plenty more ambition and his war of persistence may eventually pay off.