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00:00 Patrick

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. So to understand what's happening, I'm joined in the studio here in London today by Jordan Isvy from our Sustainable Investing team. Jordan, thanks for being here. Let's get into it. 

00:54 Jordan

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. 

01:01 Patrick

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.

01:13 Jordan

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. I'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. So essentially, the sun is obviously very, very hot and very, very pressurized. And 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. 

01:54 Patrick

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. 

02:06 Jordan 

Yeah. It was it was 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 it's a massive facility. It's probably the size of maybe a football pitch. Right. 

And just to give you a sense of how energy intense this is and how much infrastructure you need about it 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, and which is why, again, I'm sure we'll come onto this reaching sort of break even in terms of how much energy these reactors produces is really, really tricky.

02:44 Patrick

Yeah. And just again, just explain to me magnets and lasers. That's what helps create such intense heat, right?

02:50 Jordan 

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 sort of put them under such extreme conditions 

03:02 Patrick 

So that they can fuse?

03:03 Jordan 

Yep. 

03:03 Patrick 

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 people suddenly taking fusion so much more seriously, given that it seems like commercial launch is a long, long way away?

03:25 Jordan

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, but rather the Lawrence Livermore lab in 2022. And what they essentially did there is demonstrate proof of concept. So they demonstrated at the facility that you could generate more power coming out of the reactor than you have inserted into it.

And so that's really critical because it moves the conversation from, is this even theoretically possible, to how do we make this happen? And in order to make this happen, you need a lot of capital to go into the space. And so it's also shifted the dynamic away from a sort of public science endeavour to a private commercial race, where these companies are essentially racing to be best positioned to capitalise on the opportunities.

I say the second big factor that's really sort of acted as a catalyst for interest in fusion has been the AI load growth story. So 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?

And they've identified that fusion is potentially a very, very attractive source of clean baseload power that's incredibly energy dense. And I'd say the third thing relates to what you mentioned, that start around sort of industrial policy and geopolitics, where the fusion industry is effectively being framed as the sort of major export industry of the future.

If you think about, and actually, I was at a fusion industry at dinner last week and they've said, you know, 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, you know, chips and semiconductors, right. So there's a there's a very clear race there to position themselves to be leaders in this field, but also overcome their energy security challenges.

05:17 Patrick

Okay, so 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?

05:26 Jordan

So I'd say the US is currently seen as leaders in the field. You know, of the 15 largest pure plays, I think about 12 of them are headquartered in the US. So 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. And they again, recognise that the strategic advantage that this industry might present, because there are also dual use cases around defence, around medical treatments. So it's not just really about energy. 

A 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. So 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. 

And 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.

06:31 Patrick

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 what you were showing me. 

06:39 Jordan

Yeah. China's an absolutely fascinating case. So, you know, about a decade ago, I'd say China were not necessarily positioned as leaders in this field, but as China often does with, with large sort of infrastructure projects, they are able to build incredibly quickly.

So on the lift over here, I was showing you this time lapse images of over a period of sort of 4 to 5 years, they go from effectively nothing to a fully fledged nuclear reactor prototype being built. And there's potentially benefits there with their, I'd say, quicker permitting system, but they have the engineering capacity to do this. 

07:18 Patrick

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 are the hurdles are there for investors to think about? 

07:29 Jordan

Yeah. So, 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. So you can see there's a slight mismatch, I think, that's informed by a view of kind 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. The second is really reaching that engineering break even where I mentioned scientific break even earlier, engineering breakeven, essentially the whole facility. So again, the energy that goes into the lasers into to the wider facility is equal to what you produce. So that's even harder than scientific break even.

And I'd say the third sort of big hurdle that needs to be overcome is developing the value chain around the specialty components and materials that can withstand hundreds of millions of degrees.

08:27 Patrick

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? 

08:35 Jordan

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’. But clients, can we 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 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.

The second category are strategic investors. So, companies that have taken stakes in Fusion pure plays early because I've identified that potential. 

09:16 Patrick

Yeah and what what's interesting to me reading the research was that the companies taking the stakes actually come across quite a lot of different sectors. So 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.

09:32 Jordan

Yeah. And that's a reflection of the potential sort of magnitude of fusion, right. 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 that the fusion pure plays.

So again, this is the riskiest section but also potentially the highest payoff. And 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? And I think that helped to bring out that there is quite a lot of variety left in the field, which potentially is interesting because companies can still, you know, 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.

10:23 Patrick

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 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 Shu sitting here recording us. And imagine that fusion has become commercially viable. What does the world look like then? 

10:48 Jordan 

So the way I describe it is we overcome energy scarcity and we're in the world of energy abundance. And that might sound a little bit cliche, but it is. It's really, really significant right. Because if you think about the potential of fusion. So just to give you a sort of 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 seven x. What we're looking at with fusion is moving from fossil fuels to fusion. And that's an efficiency energy density gain of about a million right. So you can see the orders of magnitude here. And that opens up huge opportunities around helping to contribute to lowering emissions. So 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. 

11:38  Patrick

Yeah, I mean, it's an amazing theme and I know how enthusiastic you are about it. And I'm sure we could carry on talking about it for hours, but we've got to wrap it there. Jordan, thanks so much for joining. 

11:47 Jordan 

It's been a pleasure. Thank you. 

11:50 Patrick 

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 be back at the same time next week.