In 2011, Californian solar panel manufacturer Solyndra went bankrupt two years after accepting a $535 million loan guarantee from the U.S. Department of Energy. Solyndra seemed like a promising venture in renewables with its silicon-free, cylindrical panels. A supply chain bottleneck had caused silicon prices to spike between 2006 and 2008, giving Solyndra a short-lived advantage. Meanwhile, China built the silicon solar supply chain that it dominates to this day. Silicon prices plunged from over $400/kg in 2008 to less than $20/kg by 2013. Solyndra, despite its technological sophistication, had no chance.
The fusion industry now faces a similar dilemma. Fusion promises abundant, safe, affordable and clean electricity by harnessing the power of stars on earth. Its competition includes solar, wind, batteries, oil and gas and even coal combined with carbon capture and storage. Fusion companies that cannot show a clear path to delivering reliable baseload power at a cost competitive with these options will fail. It doesn’t matter how famous their investors are, how technically impressive their lasers and superconductors are or how many computer simulations they’ve run.
Thankfully, several fusion companies have had their work validated by third-party analysts and independent peer reviews in established scientific journals. Those companies seem to have a serious path to commercialization, but they are the exceptions. The risk today is that investors and governments deceived by hype will back the Solyndras of the fusion industry. This is an article about why that could happen and how to avoid it.
Today, mounting pressure to invest in fusion comes from five sources. First is the need for safe, affordable, clean energy that is always available and that, in principle, doesn’t require large additional investments in massive new infrastructure like shipping lines, pipelines and powerlines.
Second, fusion FOMO. Investors are hunting for the next big thing and hope to make spectacular returns within a few years. They see Silicon Valley bigwigs backing fusion startups and don’t want to be left out. Due diligence is an afterthought.
Third: Artificial intelligence. According to the International Energy Agency (IEA), data centers now consume 1.5% of electricity globally, a share that’s expected to nearly double by 2030. In the U.S., data centers already consume 10% of electricity production. Supply, clean or otherwise, is struggling to keep up with demand. Moreover, many people’s savings and pensions hinge on powering these data centers because the Magnificent 7 (Apple, Nvidia, Microsoft, Amazon, Tesla, Alphabet and Meta), which represent roughly a third of S&P 500’s market capitalization, are either in AI or highly exposed to it. Fusion could solve AI’s power crunch and help prevent a severe market correction. It may become a critical enabler of the AI revolution and, hence, a valuable investment area.
Fourth is the Strait of Hormuz, where the war between U.S.-Israel and Iran has illustrated the risk of depending on one volatile waterway for one-fifth of the world’s oil and liquified natural gas. Every country dependent on Persian Gulf fossil fuels wishes it had an alternative like fusion.
Last but not least, the fifth source of pressure is China. It has become a lead contender to commercialize fusion energy first. While 42 American fusion startups have raised $8 billion to date, notes The Economist, eight Chinese firms have raised $5 billion “much more quickly.” Its domestically competitive fusion industry, key to the Chinese Communist Party’s stated mission to achieve energy independence, is making significant progress. If history is any indication, a China dominant in fusion would use this technology as a geopolitical cudgel, much to the detriment of the West.
Climate change was reason enough to back fusion ventures competing to replace fossil-fired energy. AI, Hormuz and China have only made fusion more urgent.
Solyndra’s key mistake was to scale manufacturing in advance of a durable cost advantage. With fusion, the temptation is similar. Fusion companies are promising demonstration plants and early offtake agreements in the next few years without having solved technical challenges that are essential for commercialization. That should be ok, as long as there is third-party independent analysis on their capabilities and progress towards key milestones.
As it stands, some fusion companies lack a reliable way to produce fuel for their reactors. Some cannot figure out how to sustain fusion without destroying their reactors. Others are using extraordinarily expensive components when more affordable, proven alternatives are widely available. Few, at this point, have a realistic plan to build a power plant that connects to the grid. Collaboration and the development of strong supporting value chains for the fusion industry will be key.
History is littered with companies that were more technologically impressive than their competition but commercially flawed. Sony’s Betamax had better sound and image quality than VHS, but VHS was more cost-effective and enabled longer recording times. The Concorde was an engineering marvel, far faster than conventional jet airplanes, but its fuel consumption made tickets uncompetitively expensive, and its extreme noisiness limited where it could fly. And then there was Solyndra, with its technically superior but cost-ineffective product.
Energy technologies do not win because they are possible. They win because they are more affordable, scalable and reliable than existing options. Fusion is a business, not a science fair project.
Investors must pick winners—that’s our job—but so must governments. China’s investments in the solar stack business finished off Solyndra and foreign competition in solar. Now, China’s investments in fusion could finish off the Western fusion industry if we do not get our act together.
The greatest barrier to identifying winners in fusion is knowledge. There is a severe lack of independent third-party testing and verification. Since most investors aren’t plasma physicists, they have to take fusion companies for their word. Or, more often, they just bandwagon behind tech celebrities who have no expertise in this domain.
It’s time for the fusion industry to act like an industry instead of a series of science experiments. It’s time to invite in outside experts, who aren’t drinking the Kool-Aid, to test and critique approaches. It’s time to filter out the Solyndras, Betamax’s and Concordes of the industry before they waste scarce resources and, in so doing, set fusion back when it should be breaking through.
It’s time for collaboration and rigorous due diligence. Don’t back the next Solyndra.
Energy crisis.Increase in electricity prices on the world market
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