The first successful ‘ignition’ has boosted hopes that nuclear fusion may provide an answer to our energy needs, but now is not the time to scale back investments in renewables.
The ongoing climate crisis, as well as the Russian invasion of Ukraine, continues to highlight the global need to pivot from fossil fuels to cleaner energy sources. Here, investors have been tempted for more than half a century by nuclear fusion’s promise of safe, reliable baseload without environmentally harmful emissions or radioactive waste.
Hopes for the technology were recently boosted by the announcement by California’s Lawrence Livermore National Laboratory of the first successful ‘ignition’ in late 2022.
That news has led some to conclude the decarbonisation solution is at hand, potentially de-emphasising the urgency and perceived benefits of installing new renewable energy. However, the reality is fusion’s remaining challenges are formidable and it will never be the entire solution.
Fusion is effectively the reverse process to fission — instead of splitting a nucleus of enriched uranium, the nuclei of two or more atoms of hydrogen isotopes are combined. If fusion can be scaled, it would offer the primary benefits of fission – reliable baseload with low emissions and a small geographic footprint — without most of fission’s drawbacks. Fusion has no real risk of meltdown, generates only low-radioactivity, fast-decaying waste, and does not require enriched uranium. Instead, one of its fuels, deuterium, is abundant in sea water, and experiments are underway to ‘breed’ the other, tritium, on site. If successful, this could enhance energy security.
With fusion technology, there would be no risk of accidents akin to Chernobyl or Fukushima, while security concerns — like those surrounding Ukraine’s Zaporizhzhia plant — are also diminished.
Energy intensive
Although achieving ignition — when fusion outputs more energy than it consumes — is a major milestone, it represents a relatively small step. The reaction depended on lasers, but ignition only considers the energy those lasers delivered inside the reactor, not the electricity that powered them. When accounting for the entire operation, the ignition consumed about 100x more energy than it created.
The bigger breakthrough will be when a reactor creates significant net-positive overall energy, which is likely to still be years away — if it happens at all.
Once a sustained, net-positive reaction is achieved, nuclear fusion plants must be financed and built. This is no small task.
Even assuming a very generous 90 per cent efficiency rate, replacing the roughly two-thirds of electricity currently generated by fossil fuels would require almost 2,000 gigawatts (GW) of fusion capacity. However, early prototypes are anticipating capacity factors of just 20-30 per cent. Meanwhile, electricity demand will not stay static. Rather, it is projected to surge, especially in scenarios aligned with Paris targets, where it would more than double by 2050. Therefore, for fusion to be the decarbonisation solution, installed fusion capacity would need to reach something like 10,000 GW before mid-century — a level that exceeds all electricity capacity installed today.
Another consideration of fusion is it creates electricity, which only makes up about 20 per cent of global final energy consumption. Fusion is of little help for the other 80 per cent unless this too is electrified. For example, transportation makes up over 25 per cent of energy consumption, and more than 90 per cent of this still came from oil products in 2020, versus just over 1 per cent from electricity.
A similar story is true for electrification of buildings’ heat, where fossil fuels and biomass still dominate. In both cases, electrification is making inroads, but remains well behind the pace needed to achieve the Paris targets. Additionally, around 25 per cent of global emissions are not related to energy at all. Thus, even if fusion were viable, investments in electrification and other decarbonisation technologies need to rapidly accelerate.
Getting power where it is needed
Similarly, fusion and renewables cannot help with decarbonisation without being connected to consumers. Unfortunately, renewable projects in most developed market countries face long connection times — an average of seven years or more in developed markets like the US and the UK. Meanwhile, 774 million people globally still lacked reliable electricity access of any kind in 2022.
Even in a best-case scenario where fusion is commercially viable by the late 2030s, it could still take several additional decades to build the initial generation of plants. And several more decades before fusion makes up a material share of the energy mix. Even in this best-case scenario, fusion may not make a significant contribution until late this century.
But time is of the essence. At current rates, the 1.5C° carbon budget is projected to be completely depleted in less than 10 years. To avoid this, immediate emissions cuts on the order 8 per cent per year are needed — making a scenario of abundant fusion energy after mid-century far too late.
This scenario stands in stark contrast to the prospects for existing renewables.
The IEA estimates the average time needed to build a new renewable project is now less than two years.
The costs of renewables and storage have also rapidly decreased and are expected to continue dropping. So, it is possible fusion may not be cost competitive if/when it becomes commercially viable in many cases.
The first successful fusion ignition is an undeniable scientific achievement. Yet, it was nowhere close to producing overall net-positive energy, and even if/when that is achieved, it could take several decades more for fusion to make a positive impact on decarbonisation.
Therefore, as we monitor advancements in fusion technology, we continue to see significant opportunities for investments in renewables, as well as electrification and other clean technologies that are available already. At the same time, we cannot assume that fusion will be a silver bullet to the climate crisis, and so we must continue analyse and position ourselves for the increasing hazards posed by physical climate risks.
John Ploeg is co-head of ESG research at PGIM Fixed Income
