Fusion power: Is a megafund the answer to mobilising capital?
A ‘megafund’ for fusion
Fusion energy is having a moment. Two breakthrough experiments in eight months by US government scientists have elevated fusion power from science fiction to something with genuine potential.
But speaking to fusion executives and government officials, there remains a huge gap between the capital the nascent private sector would need to develop commercial fusion power and the funding available either from government or investors.
The problem
Much has been written about the flurry of private investment into fusion in the past two years — including by me. Total private investment in the fusion sector has now surpassed $6bn, with most of the funding coming since 2021. However, the sums raised remain tiny compared to the $1.7tn expected to be invested in clean energy technologies worldwide this year.
There are now about 40 private companies across the globe attempting to develop commercial fusion power. Each one is likely to need between $300mn and $1bn to build a prototype machine and even more to develop demonstration plants, industry officials estimate.
Enthused by the signs of private sector progress, governments are starting to provide funding and support. But the sums of money remain small.
The US in May launched a cost-sharing initiative that selected eight fusion companies to receive a combined $50mn of initial public funding. Under current plans, the programme can allocate up to $415mn before the end of 2027.
Last week, Germany promised an additional €370mn of funding for its fusion industry between now and 2028, while the UK announced plans to invest up to an additional £650mn in fusion until 2027. In both cases, some of the funds will be used to support the private sector.
Far more financing is needed. Rising interest rates, which have led to a flight of capital away from riskier investments, have made fundraising even harder for fusion companies than it was before. “Raising capital has become very, very different than it was 18 months ago,” Greg Twinney, chief executive of Canada’s General Fusion, told the Financial Times, after closing a $25mn funding round in August.
In the 12 months to June, the sector raised $1.4bn in private investment, compared with $2.8bn in the same period a year earlier.
“We do have to think about different sorts of investment vehicles, beyond just looking for billionaires and California venture capitalists,” said Andrew Holland, executive director of the Fusion Industry Association. “We need to get the Wall Street money and the City of London money in there.”
The solution?
One possible solution proposed by Zachery Halem, director of the climate centre at the investment bank Lazard, could be what he calls “a fusion energy megafund”.
The structure, which so far exists only in an academic paper he published with other authors in December, would allow investors to provide equity or debt to a central holding company that in turn invests in a portfolio of fusion start-ups.
Investors in the hypothetical megafund would be making a bet that fusion will ultimately provide commercially viable power, without having to select which company out of a diverse pool of “idiosyncratic” start-ups is most likely to succeed, Halem told me.
“The core idea is that fusion should be seen as an asset class rather than a conglomeration of early stage start-ups,” he said.
The high level of technology risk and long duration — even the most optimistic fusion chief executives struggle to see a path to profitability before the end of the next decade — mean fusion investment to date has been largely restricted to tech billionaires, venture capital funds and oil companies.
The megafund structure could provide a mechanism for institutional investors, whose assets under management dwarf the venture capital, to back fusion companies, Halem explained.
To quote from the paper:
“For investors, the most evident value of the megafund is de-risking fusion investment through large-scale diversification, providing them with a means to invest in the entire sector, including auxiliary technologies . . . In the simplest terms, the megafund transforms an investment from a bet on an individual design to a bet on fusion energy.”
Those who want to explore Halem’s ideas further can read the full paper here. It includes simulations of possible equity-to-debt ratios for the fund, a discussion of the way philanthropic donations and government support could be used to reduce financial risk, and how technology spin-offs could generate early cash flow.
The megafund is not an oven-ready solution. It is a starting point for a discussion about how to fund fusion energy if it is to succeed.
As Tim Bestwick, chief development officer at the UK Atomic Energy Authority, warned me last week: “There remains an unanswered question about how the whole global fusion community is going to get the investment into fusion that’s needed to make the rate of technical progress we all aspire to.”