Sapphire in the Rough

$100M in federal money; 36 jobs created

February 22, 2012

The federal government awarded Sapphire Energy, a green energy concern, more than $100 million for a project that is behind schedule, has only created a fraction of its expected jobs, and is, according to some experts, at least a decade away from creating a viable product.

Founded in 2007, Sapphire is working to develop algal biofuel—a replacement to crude oil made from algae and able to be refined into gasoline, diesel, or jet fuel.

Sapphire raised $100 million from private investment firms, including ARCH Venture Partners. Bob Nelsen, a founding partner of ARCH, served on Obama’s National Finance Committee during the 2008 campaign.

A Washington Post investigation found billions of taxpayer dollars flowed to green energy companies backed by venture capital firms with ties to the Obama administration.

Sapphire was no exception. In 2009, executives, board members, and employees at Sapphire contributed almost exclusively to Democratic campaigns. For example, Sapphire CEO Jason Pyle has donated only to Democrats, according to the Center for Responsive Politics.

The company has received $104.5 million from the federal government, roughly half of which were 2009 stimulus funds from the Department of Energy, to build an algae-based biofuel operation in Columbus, New Mexico.

Sapphire has spent more than $1.8 million lobbying the federal government since 2008, with an appreciable spike in 2009, when there were several biomass-related bills up for consideration.

One such bill was the Algae-based Renewable Fuel Promotion Act of 2010, which would have expanded federal tax credits for biofuel to include algae-based fuels. It passed the House in 2010 but never made it to the floor of the Senate. The House bill was co-sponsored by Rep. Brain Bilbray (R., Calif.), whose district surrounds Sapphire’s San Diego headquarters. Bilbray is the only Republican to whom Sapphire executives and board members reliably contribute.

In 2011, the Algal Biomass Organization, which promotes the industry, hired one of the biggest law firms in the U.S., K&L gates, to advocate at the federal level. That same year, Tom Udall (D., N.M.) co-sponsored a new bill, the Renewable Fuel Parity Act of 2011, that would give algal biofuel the same tax breaks as other forms of biofuel.

There is considerable interest in developing algal biofuel. Sapphire was ranked 97 on a Forbes list of the most promising companies in 2011. There are several other companies working to develop the fuel as well.

However, like many stimulus projects, Sapphire’s new facility has faced delays. The plant was supposed to be operational by 2011, creating almost 750 temporary and 40 permanent jobs. But Sapphire did not break ground until June 2011.

In October 2011, two years after being awarded federal grants, the project had only employed 15 New Mexicans and spent $575,000. Sapphire Vice President of Corporate Affairs Tim Zenk told the Las Cruces Sun-News that the project has "a long ways to go."

In November 2011, the federal government kicked more money Sapphire’s way—this time a $54.5 million loan from the Department of Agriculture.

According to the most recent quarterly report filed at, the project is less than 50 percent complete and has created 36 jobs.

Questions have also been raised about the viability of algal biomass as an alternative fuel.

Mary Rosenthal, the head of the Algal Biomass Organization, predicted in 2010 that algal fuel could compete with oil within seven years. However, a 2010 report by the University of California Berkeley’s Energy Biosciences Institute said it would take a decade of testing to even determine if algae companies can produce mass quantities of fuel at competitive prices.

The fuel is not yet commercially available. The main consumer has been the U.S. Navy, which paid $12 million for 450,000 gallons of biofuel in 2011. That works out to $26.67 per gallon.

Neither Sapphire Energy nor the Algal Biomass Organization responded to requests for comment.