Net Zero Needs Fusion. What Should Investors Be Asking The Frontrunners?

By Wal van Lierop

Wal van Nierop

Nov 10, 2022

Published on 

The urgency for fusion energy cannot be overstated. On October 27, the UN warned that there is “no credible pathway to 1.5° C in place,” and current policies point to a catastrophic 2.8° C of warming by 2100. Fusion may be the only zero-carbon energy source that can provide unlimited baseload power and enough feedstock for all the clean hydrogen necessary to decarbonize hard-to-abate industries. It is perhaps the only viable path to Net-Zero emissions by 2050.

There is one issue with fusion, however. No lab or company has generated more energy than they have put into a fusion reaction, let alone developed a system that could work in a commercial setting. Understandably, investors wonder where fusion really stands and which projects could deliver on this multitrillion-dollar opportunity to replicate the power of the Sun on Earth.

As a long-time fusion investor, I want to discuss why fusion matters, the progress this industry has made and the questions savvy investors should be asking of fusion companies.

Why Fusion Matters

At present, no energy technology besides fusion shows potential to replace fossil fuels. Nothing else appears capable of satisfying the world’s growing demand for energy and powering air conditioning, desalinization plants, electric vehicles, green hydrogen production, etc. on the scale we need for the energy transition and life on a hotter and dryer planet.

We of course need to scale wind and solar, but their land, weather and energy storage requirements mean they can’t enable a full energy transition. Nuclear fission plants are also important for Net Zero, but the risks of nuclear waste, accidents and weaponization limit their use.

As for hydrogen, Bloomberg NEF founder Michael Liebreich recently illustrated that merely replacing the dirty hydrogen we use in the production of fertilizers, chemicals and oil refining with green hydrogen would currently require 143% of the world’s installed solar and wind capacity. A daunting statement. It would leave no green hydrogen available for anything else: not for steel and aluminum production, not for balancing power networks or CO2 capture and storage, not for marine and rail shipping. There simply won’t be enough green hydrogen feedstock without fusion.

Industry insiders believe that by 2050, fusion plants could supply anywhere from 18% to 44% of the world’s energy. Fusion therefore represents one of the most colossal investment opportunities of our time. Once it is commercially operational, fusion will replace most of the fossil fuel industry.

The Fusion Frontrunners

The Fusion Industry Association reports that private fusion companies have raised over $4.8 billion USD in funding to date and more than doubled the industry’s total funding last year. Several frontrunners have made such technical progress that it is credible to assume they will bring commercial fusion to market in the 2030s. The list includes General Fusion (in which I am an investor), Commonwealth Fusion Systems, Helion, TAE Technologies, Zap Energy, General Atomics and First Light.

Each of these fusion companies intends to open a demonstration plant by the second half of this decade. These will prove whether their technology can work at scale and produce net electricity.

The wildcard is China, which is working on its own fusion technology. For obvious reasons, Western governments would rather not depend on China for this crucial technology. There is also ITER, the international, publicly financed fusion project in the south of France that hopes to deliver fusion power by 2045.

The Questions for Investors to Ask Fusion Companies

The challenge is to not only produce net electricity, but to do so in a way that is commercially viable. It takes immense pressure and heat to fuse hydrogen atoms together to form a heavier nucleus, releasing energy. In the sun, gravity supplies enough force to enable the reaction. On Earth, fusion machines have to hit temperatures upwards of 100° million C to replicate those conditions. That is hard to sustain and hard on the equipment.

The frontrunners have either solved or are working through the remaining barriers to Earth-based fusion. Interested investors, wondering which fusion project to back, should ask the following questions:

  1. How durable is the machine? The neutrons generated in a fusion reaction hit the metal wall of the reactor, causing blistering, chemical erosion and impurities, and eventually rendering the machine inoperable. This is called the “first wall problem.” One solution is to use a liquid metal wall, which surrounds the fusion reaction and protects the machine. Another approach is to introduce fuels that produce fewer neutrons. These include proton-boron fuel, which requires even higher temperatures to produce fusion, and deuterium-helium-3, which doesn’t occur naturally on Earth.

  2. How plentiful is the fuel? A mixture of two hydrogen isotopes, deuterium and tritium, fuel most fusion reactions. Deuterium is easily derived from seawater. Tritium, on the other hand, must be manufactured. Some naysayers have warned that “Nuclear Fusion Is Already Facing a Fuel Crisis.” It isn’t. Frontrunners have solved this issue by integrating tritium production into the fusion reaction. One way is to use a liquid metal (lead-lithium) wall that directly contacts fusion plasma and produces the tritium fuel for the fusion machine. Lithium-based methods of breeding tritium outside the reactor are also under development.

  3. How efficient is the energy conversion? In some machines, the liquid metal wall absorbs heat via direct contact with the fusion reaction. The liquid metal passes through a heat exchanger, producing steam that will drive a turbine and generate electricity—as most traditional powerplants do. Another promising approach is to capture electricity directly from the electro-magnetic fields generated in a fusion reaction.

  4. What additional systems complexities could prevent a timely roll out? Some fusion companies aim to use proven technologies for the periphery of their systems, while others are counting on breakthroughs with advanced lasers, materials and superconductors. These are discussed in some fascinating papers in peer-reviewed journals, and that’s the concern. They’re promising but unproven. Recall that when Tesla introduced its first cars, practically all the technology was proven. Fusion investors need to differentiate between theoretical systems and those using critical parts that have been tested in real-world conditions.

  5. Where does the demo plant and commercialization strategy stand? Top contenders have achieved fusion in a lab and proven their core technologies and individual components in testbeds. Now, they need to prove the full system can work in a demo plant at scale—hence, the capital intensity. Leading fusion ventures are beginning to augment their core team of fusion lab specialists and PhDs with an engineering team that knows how to build a powerplant. This transition from lab to real-world application is no small feat. We’re even starting to see fusion companies hire business development staff and market the rights to a first commercial plant.

  6. What will be the size? The leading fusion companies are working on plants ranging in size from 50 megawatts (MW) to 500 MW. Machine size is crucial because it affects the upfront investment cost. Smaller, modular machines will make it easier for individual utilities to make investment decisions for a commercial plant. Size also affects whether fusion units can be used for applications like ocean shipping and other lower-energy applications.

  7. Last but not least, what is the forecast cost per MWh (megawatt hour)? Fusion companies compete directly with coal- and gas-fired plants that provide baseload energy throughout the world. Thus, the levelized cost of energy (LCOE) needs to be competitive with coal which, according to the advisory firm Lazard, ranges from $65/MWh at its dirtiest to $152/MWh with 90% carbon capture integrated. Fusion machines that use costly, high-powered lasers or superconducting magnets made of rare materials could struggle with that LCOE. Granted, the costs of these components will come down in time. Fusion machines that use mechanical compression (akin to pistons in a diesel engine) or kinetic accelerators (basically, a gas-powered gun) probably will have a cost advantage over the next few decades.

Time to Face the Music

While these remaining challenges seem surmountable, the question I asked years ago remains: Who has the guts to finance the demonstration plants and push fusion to market?

Investors who move now stand a chance to earn outsized returns. Some of the above-mentioned fusion companies are still modestly priced. Of course, some investors may struggle with the potential impact of fusion on their existing energy portfolios, particularly if these include fossil fuels, wind and solar.

I say it’s time to finally face the music. Given the threat of climate change and growing demand for energy, fusion is critical to achieving Net Zero by 2050. No other technology can outcompete fossil fuels, make a bigger dent in CO2 emissions or do more to eliminate energy dependence on hostile regimes, like Putin’s Russia. Fusion is the gamechanger that could make energy truly local, secure and plentiful. It portends a shift from a centralized, autocratic energy industry to localized, democratic energy provision.

And fusion is not 20 years away anymore. Once the first fusion plant is commercially operational at reasonable cost, the switchover could be quick. Remember, it took centuries to develop the technologies behind an automobile, but it only took cars about a decade to replace horses in London and New York City. As soon as there is a better and cheaper innovation, it inevitably wins.

The hard truth is that without a step-change innovation in energy, we will blow past 1.5° C this century. Let’s hope fusion commercialization moves quicker than the temperatures.