Since June of this year, Greg Bafalis has been CEO of Aurora Algae, formerly Aurora Biofuels, overseeing the Company’s strategy, operations, and high-level relationships.
Prior to joining Aurora Algae, Greg founded and served as CEO of Green Earth Fuels, LLC, where he raised $168 million in capital and grew the company from zero to $250 million in revenue in under three years. Greg has more than 25 years of global experience in the energy sector—where he has successfully closed, financed and operated over $3 billion worth of projects.
An outgrowth of post-graduate minds at UC Berkeley, Aurora has operated a pilot facility on the Florida coast that has consistently produced algae biomass since August of 2007. From their research and business headquarters in Alameda, California, Greg is now orchestrating a corporate transformation, one that will expand Aurora’s hot zone of activities to another continent.
We were curious about the recent name change and the Australian developments, and some other drastic moves that have taken place in Greg’s short tenure at Aurora. In our recent visit to their headquarters he shared the vision for Aurora with us, and explained some of what has become clear to them after three years of pilot level algal development.
The company seems to have repositioned itself recently—a new name, expansion into Australia. How do you describe the company’s evolution at this stage?
Aurora was founded in 2006 by three gentlemen from U.C. Berkeley. Two were pursuing their masters’ degrees and one was getting his Ph.D. They established the company based on work done by a Berkeley professor named Anastasios Melis, who had some theories on photo inhibition of algae.
Based on that work, and what Aurora scientists have done in the last several years, they’ve expanded on that to create what we call a pale green cultivar algae modification. In simplified terms, it lets light penetrate farther into the water. We’re finding that we get much higher yield from the algae. We’ve also done a lot of work on our photosynthetic-based platform using open raceway ponds.
The initial focus of the company was to produce biofuels, so you have to be a very low cost producer. One of the things that they found out with our selected strain of algae is that it has a lot of other interesting characteristics. So while they pursued low cost production methods, they started looking into the possibility of producing higher value products.
I joined the company back in June with the concept of transforming the company from the biofuel focus into what it is now, a platform for growth based on growing algae. The main focus for us right now is Omega 3 EPA oil.
And the name change from Aurora “Biofuels” to Aurora “Algae,” represents the change in focus from what I call the lowest value product, which is the biofuel, into really where we should be—which is always pursuing the highest value product we can produce. So we have been actively working over the past four months on transforming the company from an R&D focus, to a commercial focus based on producing high value products. Also, earlier this year, the company acquired a site in Northwestern Australia to build its first demonstration facility.
When you look at the necessities for our algae, you need vast quantities of CO2 and vast quantities of saltwater, since our algae are saltwater-based. You need great solar radiation, and a minimum amount of rain. And you really would prefer to be on non-productive land so you aren’t competing with agricultural crops. When you consider all those factors and look around the world, there are a few locations that work very well, and Northwestern Australia had all of the elements that we needed.
We are actively in construction now on a demonstration facility, comprised mainly of six one-acre ponds that we believe will be able to prove our ability to grow algae outdoors at the yields we need. Since late August, we have had thirty-eight micro-ponds, two square meters, almost laboratory size, but outside. And those have been growing algae to test various strains we have developed, to see how they will act in that climate. We’ve gotten very good data that seems to prove out all of the reasons why we went to Australia. The demonstration facility, the six one-acre ponds, will be completed by December of this year. We’ll start growing algae on a large scale at the end of the year, or beginning of next year.
Do you plan to scale up in this country as well, or are you looking to Australia as a production base of operations?
Australia right now is our base of operations, so we’re doing the demonstration facility at the same time we are securing a large parcel of land for a commercial facility. We are in the permitting process for that and are planning to have everything in place by the end of 2011 to begin construction of our first commercial facility, about 15 miles from the demonstration facility.
Still seems like you went a long way from home to grow the next phase of the business. Any other reasons?
I came out of the biodiesel business and looked at a lot of different algae companies when I had my previous company. One of the things that always troubled me was it seemed like expedience was always driving these companies. What was the easiest, fastest thing to do? One thing about Aurora that really attracted me to coming here was that they were doing everything based on the science.
You really need to go to the optimal climate in order to grow algae at its highest productive rate. And we looked at Texas, places in Mexico, and while the conditions were good, they weren’t optimal. Texas might have great sun, but it also gets a lot of rain, a lot of clouds, and is too cold certain times of the year. The same can be said of New Mexico — there are optimal times of the year, but you get into the winter and it’s basically too cold to grow. We liked the west coast of Mexico, but there wasn’t a good source of concentrated CO2 there, so it was going to be very expensive.
We really wanted to develop this business on fundamentals: where can we build the business at the lowest cost with the optimal conditions? So that really drove us to look at places around the world. Northwestern Australia happens to be the onshore landing point for North West Shelf natural gas, so there are large LNG facilities there, fertilizer facilities there, all that had very good concentrated CO2 streams, and that were willing to enter into a very attractive business relationship with us for using their CO2.
You are quoted (on your website) as saying “For the past four years we have focused on developing high-performance, versatile strains of algae in preparation for full-scale commercialization—and to be able to say we have reached the end of that development process is exciting.” What is the “end of that development process” specifically? What is the milestone that you are referring to?
The ability to grow on a consistent basis at the yields that we require to make our company profitable. That’s really what it’s about. As far as my comment, I don’t want to say we’ve hit the end of our science, but we’ve gotten to that milestone that allows us to produce on a commercial scale.
What parts of the algal production process does Aurora plan to pursue at commercial scale level?
We’re going to go from inception, from the cultivation of algae, all the way through the backend processing and refining. We will make products that we can sell out into the marketplace. We’re not going to just sell our algae strains or sell our technology. Our basis is to be a vertically integrated business, just like a palm producer, who grows palm trees, and produces the oil, and produces biodiesel, and oleo chemicals and other consumer products. That’s the model we are pursuing.
What is the basic process for cultivation at Aurora?
We use open raceway ponds. We’ve done some enhancement on those ponds to make them much more energy efficient in moving and mixing the water, and in the harvesting process. One of the things I like here is that we haven’t gone out and tried to create cutting edge science that’s never been tried before.
Our engineering side has actually taken a lot of equipment and processes used in other applications and modified them to use in our backend processing. So, for instance, in oil extraction, it is based on technology used to extract oil out of soybeans, or out of nuts—just a simple Hexane extraction process. On the harvest side, we’re using existing wastewater treatment techniques that we’ve adapted to harvest our algae, which are about 5 microns across. We’ve also come up with a flocculation process for harvesting.
I think the way we’ve packaged our back end together is unique, and there are patents around many of those processes. But most of the production is really not anything new—mainly processes that have been tried and true and just used in other industries.
What are your first commercial products going to be?
We will produce three products in our first facility. One is the Omega 3 EPA oil, in a relatively concentrated form. There are a lot of very interesting applications for Omega 3 EPA. It’s a great anti-inflammatory, it’s great for the heart. With those applications, there are a number of customers who want to start putting it into their products.
We will also produce biodiesel. And we will produce a biomass fishmeal replacement. There are a lot of fish farms developing around the world, and the price for fishmeal has skyrocketed over the last couple of years. And then we’ll continue to evolve the technology to bring out the proteins and carbohydrates and go after other higher value markets as they appear.
What do you think Aurora does better than anyone else out there currently?
I think that the best thing that Aurora has done is build a business based on fundamentals and not based on subsidies. I think everything that we’ve done and everything that we’ve focused on is building this business based on being cash flow positive in a relatively short time frame. There are things that we have done scientifically that I think are at the forefront of the industry. And there are things that we’ve done on the engineering side that I think allow us to harvest and process at a relatively low cost. We’ve got 27 patents filed at this point and those patents are split nearly equally among the science and the technology.
In this, and previous, ventures you have been able to raise a significant amount of development capital. How do you see the VC community participating in the algal industry at this point in time?
It’s a very interesting sector right now. I think the VC community is having an epiphany on their future, because in the past they could put $5 million into some virtual reality company that was going to do something on the Internet and make a lot of money. Now, if you look at the solar sector, look at the algae sector, these are large infrastructure types of businesses where a $5 or $10 million check doesn’t cut it.
From our standpoint, where we are trying to attract capital from many sources, we’re still talking to a lot of VCs. But more and more where our real funding is going to come from is from larger funds, like private equity funds or commonwealth funds. I think that is more of our focus going into the future. We’re talking about hundreds of millions of dollars to build large-scale commercial facilities. That’s not generally in the VC world—it’s more in the private equity world. If you are going to build thousands of acres of farms, I don’t think there are many VC firms that can play at that level.
What do you think about the state of the algal production industry?
I guess I’m more concerned with the industry that I am with my business. I think we have a solid business model. I think the industry itself isn’t necessarily focused in the right area, and I think it is taking great leaps of faith in its ability to overcome huge obstacles to service what I consider very low value markets. I think if you have a fuel-based focus and you’re raising money against that, and you’re going to commercialize it on today’s basis, it’s just not going to happen. Not unless you are being funded by the government. And that is a very big concern for me, that some of these are going to be massive failures and put a black eye on the industry.
Your advice to the startups in the industry?
I would love to not have a bunch of new competitors! But at the end of the day everybody’s going to gravitate to where there’s success, and so to the extent we are successful in building out our commercial facilities and selling into these marketplaces people are going to gravitate this way.
I think that it’s a natural evolution, and that folks in this industry will look at what is logical, which is, you’re producing algae. What can you do with algae that nets you the highest value? So then why would you pursue something you’re going to sell for $3 a gallon when you can do something different with it and sell it for $50 or $100 a gallon?