Nuclear fusion: Tomorrow's solution to today's problem​

0:01Patrick Coffey:Welcome back to the Barclays Brief Podcast. So for decades, nuclear fusion has been the ultimate energy promise, recreating here on Earth the same reaction that powers the sun. It's often been described as the holy grail of energy offering virtually limitless fuel, no carbon emissions during operations and a potentially safer alternative to conventional nuclear power. And given the current geopolitical backdrop, nuclear fusion is now part of the strategic technology race, as governments increasingly view mastery of fusion as critical to their future energy security, industrial competitiveness and technology leadership.

0:44Patrick Coffey:So to understand what's happening, I'm joined in the studio here in London today by Jordan Izvi from our sustainable investing team. Jordan, thanks for being here. Let's get into it. Yeah, thanks for having me. Big fan of the podcast. I've just come back from seeing a fusion reactor in Oxford. So looking forward to sharing some of those insights with listeners. Great. Well, Jordan, so for our listeners, those without a physics background and maybe those with, explain what nuclear fusion is and why is it so potentially transformational? Yeah, I mean, I'm going to simplify this a little bit. For those with a physics background, please do not send me any hate mail.

1:18I'm sure Patrick will be able to deal with that on my behalf. I'd say that the easiest way to describe what we're doing with fusion is we're trying to recreate the same conditions as those that exist on the sun. Essentially, the sun is obviously very, very hot and very, very pressurised. Under those conditions, you can essentially merge two atoms together and that creates a lot of energy. Listeners may have heard of nuclear fission, which is something that we've been doing for commercial electricity since the 1950s. And that's essentially when you split two atoms. That also creates energy, but at a much lower rate than fusion.

1:54Patrick Coffey:Okay, so fission is splitting two atoms, whereas fusion is merging them to create energy. So I suspect many listeners that haven't seen a nuclear fusion reactor, you have. Tell us about it. Yeah, it was a very exciting experience. And we got to see the jet reactor that's run by the UK Atomic Energy Authority. And essentially, this is a, you know, it's a massive facility. It's probably the size of maybe a football pitch. Just to give you a sense of how energy intense this is and how much infrastructure you need around it for the magnets and the lasers that go into it, they gave us this stat that you would need about 2 % to 3 % of the UK's grid just to activate the reactor.

2:36Which is why, again, I'm sure we'll come onto this, reaching break-even in terms of how much energy these reactors produces is really, really tricky.

2:44Patrick Coffey:Yeah. And just again, just explain to me, magnets and lasers, that's what helps create such intense heat, right? Exactly. So again, the sun, very, very big, very, very hot. So you need the lasers for the heat and you need the magnets to keep the atoms in place when you put them under such extreme conditions. So that they can fuse. Yeah. Yeah. Okay. So the old joke in this industry, although I'm not sure it's that funny, is that fusion is always 30 years away. Yet over the last few years, we've seen a huge surge in interest. And we've seen investment and we've seen more headlines about it. What's changed and why are people suddenly taking fusion so much more seriously?

3:20Patrick Coffey:Given that, it seems like commercial launch is a long, long way away. So I'd say there's kind of three main things. So the first one is really a big scientific breakthrough that took place at the National Ignition Facility run by the Lawrence Livermore Lab in 2022. What they essentially did there is demonstrate proof of concept. They demonstrated at the facility that you could generate more power coming out of the reactor than you have inserted into it. That's really critical because it moved the conversation from, is this even theoretically possible, to how do we make this happen? In order to make this happen, you need a lot of capital to go into the space.

4:00It's also shifted the dynamic away from a public science endeavour to a private commercial race where these companies are essentially racing to be best positioned to capitalise on the opportunities. I'd say the second big factor that's really acted as a catalyst for interest in Fusion has been the AI load growth story. I suspect you've had Will Thompson on here before, who's done a lot of work on how we actually power AI. but a lot of these hyperscalers are really grappling with the question of how do we power data centers. They've identified that fusion is potentially a very, very attractive source of clean baseload power that's incredibly energy dense.

4:40I'd say the third thing relates to what you mentioned that start around industrial policy and geopolitics, where the fusion industry is effectively being framed as the major export industry of the future. I was at a fusion industry at dinner last week and they've said, this is the next AI potentially. It's going to create huge opportunities around the value chain, similarly to how AI has created opportunities in chips and semiconductors. There's a very clear race there to position themselves to be leaders in this field, but also overcome their energy security challenges.

5:17Patrick Coffey:Okay, we've got this big AI race and now increasingly the narrative is about this fusion race. Who's leading that race from your perspective? I'd say the US is currently seen as leaders in the field. Of the 15 largest pure players, I think about 12 of them are headquartered in the US. There's a very, very strong presence there. I think the Trump administration has been very supportive of the entire nuclear ecosystem, but also fusion as well. They, again, recognise the strategic advantage that this industry might present. There are also dual use cases around defence, around medical treatments. It's not just really about energy.

6:00A really interesting thing that's come out in conversations that we've had has been that Europe is actually really, really advanced in this field. The UK, I might be biased because I've just been to the facility, but they have a fusion innovation cluster, which is very, very advanced. I think Germany is a really interesting example because they've had, I think, historically an aversion to fission, which they are not replicating with fusion. They're really front-footed with it. And I think that demonstrates some of the security and safety benefits that fusion has relative to fission.

6:30Patrick Coffey:Okay. And what about China? Because on the way up here, you were showing me some satellite images, which slightly blew my mind. Explain to the listeners what you were showing me. Yeah. China is an absolutely fascinating case. So about a decade ago, I'd say China were not necessarily positioned as leaders in this field, but as China often does with large infrastructure projects, they are able to build incredibly quickly. On the lift over here, I was showing you these time-lapse images of a period of four to five years. They go from effectively nothing to a fully-fledged nuclear reactor prototype being built.

7:09There's potentially benefits there with their, I'd say, quicker permitting system, but they have the engineering capacity to do this.

7:17Patrick Coffey:Yeah. Okay. Briefly, talk to me about when can we get to commercial scale and what are the hurdles there? Because there are many, I'm sure, not least regulatory. What other hurdles are there for investors to think about? Yeah. In the recent report that we published, our base case was for commercial fusion in the 2040s. Some of the companies in the field, like Helion, are talking about delivering electrons onto the grid by 2028. You can see there's a slight mismatch. I think that's informed by our view of three main hurdles that still need to be overcome. The first one is economics. We don't know basically what a fusion reactor is going to cost because we haven't done it before.

7:57The second is really reaching that engineering breakeven, where I mentioned scientific breakeven earlier. Engineering breakeven is essentially the whole facility. Again, the energy that goes into the lasers, into the wider facility, is equal to what you produce. That's even harder than scientific breakeven. I'd say the third big hurdle that needs to be overcome is developing the value chain around these specialty components and materials that can withstand hundreds of millions of degrees.

8:26Patrick Coffey:Okay, so let's assume an investor believes Fusion could become a major technology over the coming decades. How can they gain exposure to the theme today? So in the interest of time, I'm not going to be able to go through all the names that we identified in our recent report called Tomorrow's Solution to Today's Problem. We'd encourage clients to go have a look at that. But the way we think about it is three broad categories, right? So the first one is enabling suppliers and the wider ecosystem. So these are companies that are They're publicly listed, highly liquid, and they're the ones producing the high temperature superconducting tape, but also the lasers, providing the construction and the engineering services that you need to build such big facilities.

9:07The second category are strategic investors. So companies that have taken stakes in fusion pure plays early because they've identified that potential.

9:16Patrick Coffey:Yeah. And what's interesting to me, reading the research, was that the companies taking the stakes actually come across quite a lot of different sectors. You've got some oil and gas companies, some utility companies, and some tech companies all taking these strategic stakes to have exposure to the theme. That's a reflection of the potential magnitude of fusion. They all recognise that it's probably going to alter their business model and they want to be best positioned to capitalise on that opportunity once it arises. Maybe I can talk about the final bucket that we identified in the report, which is the fusion pure plays.

9:51Again, this is the riskiest section, but also potentially the highest payoff. In our report, we identified 15 of the largest pure plays and we look at what are the different technology types that they're embracing, who are their investor base, what's their USP. I think that helped to bring out that there is quite a lot of variety left in the field, which potentially is interesting because it's a race and companies are still trying to get ahead, but also introduces that risk element of we don't really know what the winning technology is going to be like today.

10:23Patrick Coffey:Yeah, because I think what, reflecting on reading your note, what stood out for me was just how many different types of ways investors can play the theme. Okay, so let's end by looking ahead and I'm going to paint a pretty scary picture for you. Imagine we're sitting in the same studio in 2050, same microphones, same producer's shoe sitting here recording us. And imagine that fusion has become commercially viable. What does the world look like then? The way I'd describe it is we overcome energy scarcity and we're in the world of energy abundance. That might sound a little bit cliche, but it's really, really significant.

10:58If you think about the potential of fusion, just to give you a context here, if you look at humankind during the industrial revolution, we went from burning biomass to fossil fuels. That was an efficiency gain essentially of 7x. What we're looking at with fusion is moving from fossil fuels to fusion, and that's an efficiency, energy and density gain of about a million. You can see the orders of magnitude here and that opens up huge opportunities around helping to contribute to lowering emissions. There's many, many challenges that fusion can be a very critical solution for and that's why governments, investors, companies have been so excited by this theme.

11:39It's an amazing theme and I know how enthusiastic you are about it.

11:43Patrick Coffey:I'm sure we could carry on talking about it for hours. We've got to wrap it there. Jordan, thanks so much for joining. It's been a pleasure. Thank you. Progress in fusion is unlikely to be linear and I think we should expect some setbacks along the way. The potential prize remains enormous. If the scientific and engineering challenges can be overcome, fusion could fundamentally reshape the global energy system in the second half of the century. Thanks a lot for listening to The Barclays Brief. If you enjoyed today's conversation, do hit subscribe and we'll be back at the same time next week.