This paper focuses on a novel process for adding value to algae residue. In current processes oleaginous microalgae are grown and harvested for lipid production leaving a lipid-free algae residue. The process described here includes conversion of the carbohydrate fraction into glucose prior to lipid extraction. This can be fermented to produce up to 15% additional lipids using another oleaginous microorganism. It was found that in situ enzymes can hydrolyze storage carbohydrates in the algae into glucose and that a temperature of 55 degrees C for about 20 h gave the best glucose yield. Up to 75% of available carbohydrates were converted to a generic fermentation feedstock containing 73 g/L glucose. The bioconversion step was found to increase the free water content by 60% and it was found that when the bioconversion was carried out prior to the extraction step, it improved the solvent extractability of lipids from the algae. (C) 2012 Elsevier Ltd. All rights reserved.