Financing Fusion Energy

62 Pages Posted: 23 Dec 2022 Last revised: 17 May 2023

See all articles by Abdullah Alhamdan

Abdullah Alhamdan

MIT School of Management

Zachery Halem

Lazard; MIT Laboratory for Financial Engineering

Irene Hernandez

Gataca, Inc.

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Manish Singh

Massachusetts Institute of Technology (MIT) - Electrical Engineering and Computer Science

Dennis Whyte

MIT Laboratory for Financial Engineering

Date Written: December 14, 2022

Abstract

The case for investing in fusion energy has never been greater, given increasing global energy demand, high annual carbon dioxide output, and technological limitations for wind and solar power. Nevertheless, financing for fusion companies through traditional means has proven challenging. While fusion startups have an unparalleled upside, their high upfront costs, lengthy delay in payoff, and high risk of commercial failure have historically restricted funding interest to a niche set of investors. Drawing on insights from investor interviews and case studies of public–private partnerships, we propose a megafund structure in which a large number of projects are securitized into a single holding company funded through various debt and equity tranches, with first loss capital guarantees from governments and philanthropic partners. The megafund exploits many of the core properties of the fusion industry: the diversity of approaches to engender fusion reactions, the ability to create revenue-generating divestitures in related fields, and the breadth of auxiliary technologies needed to support a functioning power plant. The model expands the pool of available capital by creating tranches with different risk–return tradeoffs and providing a diversified “fusion index” that can be viewed as a long hedge against fossil fuels. Simulations of a fusion megafund demonstrate positive returns on equity (ROE) and low default rates for the capital raised using debt.

Keywords: fusion investments, green investments, fusion megafund, fusion portfolio, de-risking strategy, decarbonization, financial engineering

JEL Classification: Q42, G11, G32, G24, Q30

Suggested Citation

Alhamdan, Abdullah and Halem, Zachery and Hernandez, Irene and Lo, Andrew W. and Singh, Manish and Whyte, Dennis, Financing Fusion Energy (December 14, 2022). MIT Sloan Research Paper No. 6657-21, Available at SSRN: https://ssrn.com/abstract=4301605 or http://dx.doi.org/10.2139/ssrn.4301605

Abdullah Alhamdan

MIT School of Management

Zachery Halem

Lazard ( email )

30 Rockefeller Center
New York, NY 10112
United States

MIT Laboratory for Financial Engineering ( email )

100 Main Street
E62-611
Cambridge, MA 02142

Irene Hernandez

Gataca, Inc.

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

Manish Singh

Massachusetts Institute of Technology (MIT) - Electrical Engineering and Computer Science ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

Dennis Whyte

MIT Laboratory for Financial Engineering

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
976
Abstract Views
2,727
Rank
49,486
PlumX Metrics