Segra Capital Management has spent the last several years solely focused on investing in the clean energy transition. As many academic papers have pointed out recently, reaching net-zero is a goal which will cost trillions of dollars and will fundamentally change the way we live, work, and invest over our lifetimes. While we are not in the business of predicting the future, we are confident in two things: (1) the pace of investment to date is woefully inadequate to meet the lofty goals being set by politicians and academics and (2) existing technologies are unlikely to get us there in the timeframes required. We believe that to reach net-zero, humanity will need an “all of the above” approach to clean energy investments with a keen eye toward sustainability, scalability, and longevity.
With this in mind, we launched Segra Resource Partners in 2018 to focus on nuclear energy and nuclear fuel cycle related investments in the public markets. While many western investors at the time saw nuclear as a dying business, we couldn’t model a pathway to net-zero without a significant and growing contribution from the technology (neither can most experts as outlined here, here, here and here). Several years later, despite a growing recognition that nuclear energy is vital to our future, we continue to view the sector as underfollowed, misunderstood and underinvested by most institutional pools of capital.
While most readers are likely more familiar with our work on nuclear fission, over the past year we have spent a significant amount of time researching nuclear fusion. This week, we were proud to announce our first investment into the nuclear fusion space – Segra Capital Management served as an anchor investor for General Fusion’s Series E Financing. In this post we’ll briefly discuss nuclear fusion, outline what we like about General Fusion’s approach to the technology and frame the investment against our broader views on clean energy.
The Promise of Nuclear Fusion
Despite fission and fusion both falling under the category of atomic energy, fission produces energy by splitting atoms apart, while fusion involves pushing them together (or “fusing” them). This is the same process that powers the sun. While fission uses very heavy elements as fuel (Uranium), fusion is fueled by very light gaseous elements. Today, most research is centered around Deuterium and Tritium, isotopes of Hydrogen, which when super-heated into a plasma at over ~100 million degrees Celsius fuse releasing Helium, energy, and a neutron.
While a full deep dive on nuclear fusion is outside the bounds of this blog post, we’ll highlight a few characteristics of the technology. First, because most current plans for fusion run on Deuterium which can be extracted from sea water and Tritium which can be extracted from Lithium, fuel is plentiful and inexpensive. Second, the waste product from fusion, while radioactive, is far more manageable than that of conventional nuclear.[i] Third, the environmental footprint of a nuclear fusion facility is incredibly small when compared to alternatives and power output should be flexible enough to pair well with other clean energy sources (i.e., it can load follow wind & solar). Finally, there is no risk of meltdown with nuclear fusion so many of the zoning and permitting issues which have traditionally hampered nuclear fission are not relevant. This is one point that often surprises people looking at fusion for the first time – the idea of starting a chain reaction to mimic a star on earth can understandably seem dangerous to the layperson. To oversimplify a complex topic, you can think of nuclear fission as very easy to start but difficult to stop while nuclear fusion is incredibly difficult to start but very easy to stop (and hence, unable to “melt down” in a runaway reaction).
So nuclear fusion theoretically checks all the boxes – its fuel is cheap and plentiful, it is flexible, safe, and low carbon. This is why so many scientists have referred to it as the “Holy Grail” or energy. Sounds great.
But nuclear fusion is hard! The old saying is that “nuclear fusion is 20 years away and always will be.” Why? The sun is able to produce a sustaining fusion reaction due to its incredible mass and the gravity that creates – this is very difficult to mimic on earth. At the sun’s core, the temperature is about 15 million degrees Celsius but more importantly the atmospheric pressure is over 200 billion times greater than earth. This extreme heat and pressure create the perfect environment for thermonuclear fusion where the sun’s hydrogen is slowly converted into helium. During that process, some of the sun’s mass is converted to energy producing the heat and light we on earth are so fond of.
As briefly mentioned, to recreate these conditions on earth scientists need to superheat hydrogen isotopes to ~100 million degrees Celsius to create a plasma (a high energy state of matter in which electrons are stripped from atoms and move freely about). They then need to pressurize and contain the plasma to sustain the reaction (this is very difficult – think back to your science 101 classes on energy, entropy and the Second Law of Thermodynamics). It takes a tremendous amount of energy to accomplish this process and scientists have spent much of the last 20 years trying to create a system which produces net-energy, or in industry terms has a “Q” factor greater than 1 (a further discussion of which is a rabbit hole we’re not going to tackle in this blog). If they can do this in a repeatable, economic way and then convert that energy to a usable “on grid” form, fusion will become a reality.
While this process is incredibly difficult, over the last few years a number of privately funded fusion startups have harnessed advances in technology to make progress in ways which few could have predicted a decade ago. These companies are tackling fusion with a variety of designs utilizing innovations in fields such as advanced materials, compression systems, high temperature superconducting magnets, and targeted laser systems to create the power generation facilities of the future. While on grid fusion remains years away, we believe the technology is beginning to transition from the research and develop stage toward commercialization.
Segra is not alone in recognizing the promise of fusion technology. Private funding for the sector has increased dramatically over the past several years with 2021’s over $2 billion in commitments surpassing total cumulative capital raised for fusion over the last 20 years. While this number may seem like a lot, it pales in comparison to the capital raised in other clean energy sectors such as hydrogen, electric vehicles and battery technology (despite it’s potential to be significantly more impactful to reaching net-zero if successful).
Why General Fusion?
While the majority of our work on General Fusion remains under NDA, we’ll briefly walk through why we found an investment in the company compelling. In our view a successful commercial fusion energy system needs to accomplish the following:
- Capability: System creates and sustains fusion conditions, producing net energy
- Deployability: Energy is converted to a usable form for customers, “balance of plant” is well defined
- Durability: Power plant design avoids structural materials degradation (i.e., the “first wall” issues as discussed below)
Over the past 30 years the vast majority of research has been, understandably focused on #1. As fusion moves closer to realization, we believe that a system’s capability to produce energy will be a necessary but ultimately insufficient condition to broad adoption and commercial success. While there are a number of promising technologies which may achieve fusion conditions in the next decade, we believe General Fusion has the most elegant design to accomplish all three above.
General Fusion is developing a technology called “Magnetized Target Fusion” which involves rapidly compressing a magnetically confined plasma with a liquid lead-lithium metal liner to heat the fuel to fusion conditions (a brief video on the technology can be found here). The process begins with what can be thought of a lukewarm plasma (just ~5 million degrees Celsius) which is then injected into the plant’s core before the liquid metal wall is compressed by pistons driven by advanced high speed digital control systems. This pulse of pressure superheats the lukewarm plasma to over ~100 million degrees Celsius, triggering a fusion reaction creating energy in the form of heat. A major benefit of the pulsed system is that it eliminates the need for complex and costly long-term stabilization of the plasma at fusion condition temperatures.
As the system pulses, the now heated metal is circulated out of the core and through an energy conversion system using proven technologies such as heat exchangers and conventional steam turbines to produce on clean, low-carbon grid electricity. While the concept of energy conversion seems relatively basic, this is one area where we believe General Fusion’s design is differentiated vs. many fusion peers. Having an energy conversion system utilizing many of the same technologies and “balance of plant” support utility customers currently employ in thermal power plants simplifies system integration and should increase customer adoption.
The final benefit has to do with system durability or what is often referred to as the “first wall issue” of fusion power plants. If you remember from the image at the outset of this post, when Deuterium and Tritium fuse they produce Helium and energy, but they also release what is called a “high energy neutron”. High energy neutrons damage and degrade materials over time. This well understood radiation damage is one of the primary issues with fusion reactors designs and each technology tries to deal with them in their own way. Without solving this first wall issue, power plants would require significant sustaining capital investments as component parts are replaced frequently due to structural damage. As you can imagine – re-building a fusion reactor every few months or years can quickly make a technology uneconomic regardless of the system’s ability to create energy. While some competitors rely on yet-to-be-discovered advanced materials or alternative fuel sources to solve the problem, the lead-lithium liquid metal wall in General Fusion’s design actually absorbs the high energy neutrons which protects the reactor walls as well as breeding additional tritium (solving another fusion problem we won’t get into in this blog post). This system durability solution is unique to the General Fusion reactor design.
Some other factors which led Segra to invest in General Fusion include the company’s management, partners, and supporters. As with any new technology, we believe success in the nuclear fusion space will hinge not just on science and engineering but on management’s ability to execute the company’s strategic vision and align stakeholders over time. Projects of this scale and risk require the ongoing support of governments, financial backers, and most importantly future customers. The team at General Fusion has approached this challenge in a practical and commercially driven way and while they clearly recognize the blue-sky potential of the technology, their approach to the business thus far indicates that they understand creating shareholder value and have both feet planted firmly on the ground.
To date the company has been successful in raising significant non-dilutive government funding from Canada, the United States, and the United Kingdom. Aside from Segra, they have strong financial backing from a stable of well-respected investors including Bezos Expeditions, Temasek and GIC. On the customer side the company has created a multinational Market Development Advisory Committee which applies end-user input to influence and improve commercial plant design on an ongoing basis. This includes a diverse set of influential partners including large utilities at the forefront of advanced nuclear. Finally, and perhaps most importantly, this summer the company announced their intention to build a Fusion Demonstration Plant by 2025 at the Culham Center for Fusion Energy which will be supported and partially funded by the UK government.
These factors, taken together along with the specifics of the Series E round presented a fantastic opportunity for Segra’s first private advanced nuclear investment and we are thrilled to support General Fusion into the future.
We want to be clear that despite our excitement for General Fusion, we want to see all of these advanced nuclear companies succeed. In the fusion space, we believe a number of General Fusion’s peers have promising technologies which will no doubt see future success including TAE Systems, Commonwealth Fusion Systems, Tokamak Energy, Helion Energy and First Light Fusion. On the advanced fission side, we are seeing more and more interesting opportunities (and you will likely be hearing more on this from us in the future). As we’ve said in the past, in order to achieve net-zero, humanity needs multiple “shots on goal” to succeed and many of those shots will create compelling opportunities for investors.
At this moment we believe some of the most intriguing investments in the clean energy transition are difficult to pursue in public markets. Whether it is advanced nuclear fission or fusion, CCS, energy grid optimization, materials recycling etc – there just aren’t many public pure play options for investors. This is likely why technologies such as hydrogen and electric vehicles (both of which are dependent on much cleaner energy grids to have a real environmental impact) have had such extreme moves and seen capital deployed so inefficiently. If and when these opportunities transition from private to public markets, given the amount of capital being allocated clean energy investing – watch out… you might as well do your homework now.
One final point – we’ve had a number of inbounds this week asking if our investment in fusion implies some shift in our thinking toward nuclear fission and by extension our Uranium thesis. In our minds the investments are actually quite complementary. While the potential for fusion energy in the future clearly threatens to disrupt much of today’s energy landscape, we’d remind readers how large and complex the global energy system is (and how long it takes to change). If all goes well, we may see fusion power on grid by the end of this decade and that would be a phenomenal success story. Given the technology’s addressable market and the progress we are seeing today, this makes the industry an attractive investment to us. However, we are a long way away from having enough evidence to invalidate existing business models. Segra remains a strong advocate for both existing large scale and advanced nuclear fission. It remains shocking to us that in a world awash with capital, large, long lived, valuable assets like nuclear power plants are not receiving more investor attention. Over time as the energy transition continues and society begins to realize how ill-equipped our current solutions are for accomplishing our goals, we believe that will change. Fission’s future is brighter than it has been in a very long time and the fundamentals underpinning our uranium thesis have improved far beyond our expectations several years ago. As fusion transitions from concept to concrete, we’ll undoubtedly see more investor interest. Our view is that intelligent investors should have allocations to both opportunities… and shockingly few do.
Thanks for reading,
Segra Capital Management
[i] If you are reading this, you likely know that we actually view the waste from fission as one of the technology’s main selling points. Nuclear waste is well understood, stored effectively, and has an incredible safety record. This is not an argument against fission in any way, but we do believe that this is an area where fusion is scientifically superior.