Financing Fusion Energy

Vol.21, No.1, 2023
by Abdullah Alhamdan, Zachery M. Halem, Irene Hernandez, Andrew W. Lo, Manish Singh and Dennis Whyte

The case for investing in fusion energy has never been greater, given increasing global energy demand, high annual carbon dioxide output, and technological limitations for wind and solar power. Nevertheless, financing for fusion companies through traditional means has proven challenging. While fusion startups have an unparalleled upside, their high upfront costs, lengthy delay in payoff, and high risk of commercial failure have historically restricted funding interest to a niche set of investors. Drawing on insights from investor interviews and case studies of public–private partnerships, we propose a megafund structure in which a large number of projects are securitized into a single holding company funded through various debt and equity tranches, with first loss capital guarantees from governments and philanthropic partners. The mega fund exploits many of the core properties of the fusion industry: the diversity of approaches to engender fusion reactions, the ability to create revenue-generating divestitures in related fields, and the breadth of auxiliary technologies needed to support a functioning power plant. The model expands the pool of available capital by creating tranches with different risk–return tradeoffs and providing a diversified “fusion index” that can be viewed as a long hedge against fossil fuels. Simulations of a fusion mega fund demonstrate positive returns on equity (ROE) and low default rates for the capital raised using debt.