VentureBeat

Continuing the trend of major oil companies taking interest in producing biofuels from algae that Royal Dutch Shell started last December, Chevron has opened a deal with Solazyme, a San Francisco biotech startup.

The partnership follows an agreement Chevron made last year with the Department of Energy to produce fuels from algae, while Solazyme, which works in several areas outside biofuels, has become more focused on algae in recent months.

Solazyme also announced today that it has produced an automotive-ready biodiesel from algae and tested it in a standard diesel-engine car. The company has already tested the fuel in long-distance driving conditions and is displaying the fuel at this year’s Sundance Film Festival, underway now in Park City, Utah.

Algae is a logical source of fuel, as the organisms are naturally oily. However, companies face a challenge in scaling production to levels that will make the fuel cost-effective. Researchers must coax the algae into churning out the right kinds of oil at a greater than natural pace.

Other companies working on algal biofuels include Cellana, the joint venture between Shell and HR Biopetroleum, Aurora Biofuels (coverage here), and LiveFuels, whose founder, Rich Hilt, wrote a contributor piece for VentureBeat on the future of algae.

Solazyme itself has captured a fair amount of funding recently, taking in $8 million in venture funding and $7 million in venture debt last year (covered here and here). The terms of its agreement with Chevron weren’t disclosed.

LiveFuels, a Menlo Park, Calif. company seeking to turn algae into an alternative fuel, has raised a $10 million round of capital.

The investor was David Gelbaum at the Quercus Trust, which has previously backed environmental organizations such as the Sierra Club and the Wildlands Conservancy.

We reported earlier that LiveFuels was looking to raise the money, and ran a column by LifeFuels’ founding investor Rich Hilt about why using algae makes sense.

Why algae? Well, as the company puts it, the slimy critters…
* are naturally comprised of up to 60 percent oil.
* grow happily in marginalized lands where corn fears to tread.
* can be grown in fresh or brackish water (saltier water algae are oilier)
* thrive on sunlight, CO2 and nutrient rich agricultural run-off and waste.
* offer per acre yields that are 250 times that of soybeans.

You know things are hot in the clean-tech area when several algae companies emerge to do the same thing. Berkeley s Aurora BioFuels and Menlo Park’s Solazyme Inc. have also raised recent rounds.

LiveFuels hopes to have its biofuel ready by 2010.