By Martin Kupp, professor of entrepreneurship at ESCP Business School and strategic advisor to Renaissance Fusion.
Almost all international energy and environmental agencies have stressed the need for a future energy landscape that significantly limits greenhouse gas emissions.
Most of these proposals, such as the International Energy Agency (IEA) Sustainable Development Scenario, recommend a significant reliance on solar and wind power, and an increase in natural gas, as well.
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Nuclear fusion is typically excluded from these analyses and scenarios. Its upsides are wellknown: high power density, dispatchability (no intermittency), limitless source availability, low environmental impact and high sustainability, no risk of meltdown.
The problem with fusion is that its feasibility and near-term deployment timeline are still questioned. Yet, two experiments have produced tens of MW of fusion power as early as in the mid-1990’s (JET in Europe and TFTR in the USA).
Other experiments (such as the superconducting tokamak EAST in China and Wendelstein 7-X stellarator in Germany, to name a few) hit other milestones in the 2000’s and 2010’s.
The International Thermonuclear Experimental Reactor (ITER) project, the world’s largest fusion program backed by the European Union, China, India, Japan, Russia, South Korea and the United States, is on track to obtain its first plasma in 2025.
As argued in a separate article in Power Engineering International, the progress of fusion throughout its history has been tremendous: a proxy of fusion performance called “triple product” has increased by a factor 1,000,000 ( a million).
Yet another increase by a factor 2x or higher, and fusion will produce net power. ITER is expected to achieve this historic milestone in 2035. With the scientific feasibility of net fusion power in sight, this is the time to address its industrial and commercial aspects.
Private companies on the rise
In conjunction with recent technological developments, fusion research has started to transition from government labs to the private sector. The Fusion Industry Association, a nonprofit organization composed of private companies working to commercialize fusion power, currently counts 22 members. The Fusion Energy Base even lists 34 private companies.
Renaissance Fusion, founded in 2020 by plasma physicist Francesco Volpe, is one of these companies. Fusion research projects have been historically funded by governments and have therefore been dependent on government priorities.
Fusion funding in the US, for example, peaked during the energy crises of the 70s, sharply decreased in the 80s and has remained relatively constant since. The private fusion sector has been traditionally underfunded. ITER’s expected cost -of the order of $25 billion- exceeds the total financing of the entire private fusion industry by a factor 15 or higher.
Private fusion financing has seen noticeable improvements over the past few years: the number of fusion investment rounds has more than doubled since 2016, and high-net-worth individuals such as Jeff Bezos, Bill Gates, and Peter Thiel have thrown support behind ventures.
Nonetheless, fusion has still not seen the proliferation of investor capital that is warranted by its recent scientific developments, and a number of promising, novel, and high-upside fusion startups are being passed on by investors in favor of more standard solar and wind technologies.
A fusion ‘megafund’?
Researchers at MIT’s Laboratory for Financial Engineering (LFE), under the direction of Dr. Andrew Lo, are analyzing and testing novel financing mechanisms to incentivize a greater capital infusion into private fusion.
One possibility is to utilize a ‘megafund’ approach, as previously proposed by Lo for biomedical research, but specifically tailored towards fusion
According to Zach Halem, an LFE researcher on the project, the basic idea behind a megafund is to amalgamate many projects into a single financial entity, thus reducing the risk to such a point that funding can be sourced through debt securities, such as bonds.
“The megafund structure allows for a high degree of asset diversification, the ability to use debt (which has a lower cost of capital than equity), increased risk optionality for investors through the creation of different tranches, and a greater pool of available capital (in 2018, $254 billion was invested globally through venture capital financing, while the size of the global bond market stood at $102.8 trillion),” says Halem.
Fusion should be a macro bet
Creating a fusion megafund will require a large number of private fusion companies based on the setup of the structure. But why wait for these funds to get established? As long as the number of private ventures is still rather low, serious investors have the chance to invest in several of these ventures. By doing so they could be covering a range of different technical approaches and therefore significantly increase their chances of benefitting of a major trend.
With some private money already flowing into fusion, we argue that more capital could be infused into the fusion ecosystem if the investment opportunity would be re-assessed.
Through his research, Halem found that “most institutional investors, at present, see fusion as a highrisk, high return opportunity for diversification in the energy sector.
If you examine the present trajectory of fusion research and the depletion rate of oil reserves, it is sensible for investors to view a nuclear fusion investment as a long-term hedge against oil.”
But it’s about time that investors treat fusion as a macro bet in itself, rather than part of a broader energy bet. Fundamental technological approaches to reach breakeven energy vary greatly, and it is unknown which concept or set of concepts will ultimately triumph.
Investing in a single fusion company is not a good representation of investing in fusion as a whole. The 22 commercial start-ups organized in the Fusion Industry Association fall broadly into three categories: magnetic confinement, inertial confinement and magneto-inertia confinement.
Even within these three approaches there are noticeable differences. For example, within the magnetic confinement category, some companies like Commonwealth Fusion Systems and Tokamak Energy are utilizing a tokamak design (the concept of ITER, but smaller), while Renaissance Fusion and Type One Energy are developing a stellarator design (similar to the Wendelstein 7-X experiment).
Given the uncertainty around the future success of any specific technology, it is important to diversify, from both a societal and financial perspective. Fusion is just too important to bet on only one concept.
Additionally, the underlying technologies involved in making fusion happen are so fundamental that many of them will create their own exciting industries. It is therefore possible to shorten the expected return horizon through spinoffs.
Much research conducted by fusion companies is foundational physics, spurring new discoveries and advances in magnets and lasers. Known and prospective external applications of fusion technologies include superconducting magnets for Magnetic Resonance Imaging, levitated trains like the HyperLoop, systems for cancer treatment, electric generators (e.g. for wind turbines), electric motors (e.g. for electric vehicles), electromagnetic aircraft launch systems, space reentry vehicles, and thrusters for space travel.
According to BCC Research, the global market for superconductivity applications will grow with a compound annual growth rate (CAGR) of 7.5% between 2017 and 2022, and should reach $8.8 billion by 2022. One current fusion spinoff, TAE Life Sciences, was launched out of TAE Technologies in 2017 to leverage their accelerator-based neutron beam for cancer treatment.
Halem has also confirmed that the LFE has been modeling fusion spinoff applications as a mechanism to increase the immediacy of cash flows and produce additional IP value.
The way forward
Just in January 2020 Albert Wenger, a famous VC at USV in New York, wrote a blog post where he called for billionaires to fund fusion. He argued that people who fund successful nuclear fusion are guaranteed a spot in the history books, as clean electricity is absolutely crucial to fighting the climate crisis. He also mentioned that we need to pursue many different fusion
I fully agree with this analysis and take his argument even further by stating that, from an investor perspective, it makes a lot of sense to spread the risk by investing in several ventures.
This is especially true in this historical moment: while the overall investment needed in the long run is big the tickets to invest right now are still reasonable, as the majority of the fusion ventures mentioned above is looking for seed and series A funding. Diversification therefore does not need billions, but merely millions.
Fusion energy and its spinoffs in medtech, mobility, space travel and elsewhere present a unique opportunity to solve important problems of our time. The ticket to that is disproportionately cheap and easily de-risked by diversification.
(The author would like to thank Francesco Volpe for valuable comments on earlier versions of this article.)