After Raising Private Equity, Sapphire Energy Repays Loan Guarantee

7/30/13Follow @bvbigelow

San Diego’s Sapphire Energy, a leading developer of algae-based biofuels, says today it has repaid a $54.5 million federal loan guarantee.

As a result of the loan guarantee, made in 2009 through the Department of Agriculture’s Biorefinery Assistance Program, Sapphire says it is now producing the world’s first renewable “green” crude oil at its demonstration plant in Columbus, NM. In a statement, the company also notes that it developed the facility and began operations “on time and on budget.”

Sapphire says, “The company repaid the remaining loan balance in full after receiving additional equity from private investors, making the loan no longer necessary to complete the next, planned phase of development.”

It also was a shrewd political move for the renewable energy innovator. In the fall of 2011, the sense of anxiety at Sapphire over its federal loan guarantee was almost palpable after Solyndra, the thin-film solar module manufacturer based in Fremont, CA, ceased all business activity and filed for Chapter 11 bankruptcy reorganization.

Solyndra had received a $535 million loan guarantee from the U.S. Department of Energy, with most of the financing provided by the American Recovery and Reinvestment Act. The bankruptcy came as a surprise, and critics immediately began asking pointed questions about similar subsidy packages the government had awarded to other renewable energy projects (for billions of dollars).

The Solyndra bankruptcy also provided fodder for conservative media critics like Rush Limbaugh and Charles Krauthammer, who assailed President Obama for supporting the development of algae biofuel programs, and who began questioning the validity of algae biofuel claims.

Jason Pyle, who was Sapphire’s CEO at the time, explained at some length in a Q&A with Xconomy how Sapphire’s financing arrangement differed from the Solyndra deal. “I firmly believe loan guarantees and federal support are an absolute necessity to transition this nation to crude oil replacements and make our nation more energy secure,” Pyle said in the article. “There is healthy venture capital interest to fund the strongest science in our space. But venture investments must be augmented by government funding to reduce private capital risks, and to speed new technologies to market.”

Pyle left Sapphire a few months later, at the end of March, 2012. Cynthia “C.J.” Warner, a veteran oil industry executive who was Sapphire’s chairman and chief operating officer, succeeded Pyle as CEO.

Nevertheless, the advent of hydraulic fracturing, or fracking, used by the oil industry to increase oil and gas yields, has added new uncertainties to the economics of algae-based biofuels. As Sapphire moves forward with its technology, the company seems likely to look for support from the Department of Defense, which has made strategic arguments for reducing American dependence on foreign energy sources and encouraged the development of algal biofuels. In its statement, Sapphire also makes a case for the role algal biofuels could play in boosting rural economies by increasing domestic energy production and creating new jobs.

Sapphire now refers to its algae-growing facility and crude oil production facility in New Mexico as its “Green Crude Farm,” and says its integration of biotechnology, agriculture, and energy demonstrate the potential value of green crude production. “More than 600 jobs have already been created throughout its phase 1 construction, and 30 full-time employees currently operate the facility. The company expects to be producing 100 barrels of crude oil per day in 2015, and at commercial-scale production in 2018.

In any case, Sapphire has made an adroit move. By repaying its government loan guarantee, Sapphire has eliminated a potentially effective political issue that critics might use to attack government support for the company’s renewable energy technology.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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