News & Analysis

John MacDonagh is a senior analyst at PitchBook covering climate tech.

Recent news that scientists have achieved positive energy gain from a fusion reaction completes a key goal for fusion research. However, creating the conditions necessary for fusion to take place still carries a considerable energy cost, and significant progress is needed to develop the technology.

For this reason, we expect other alternative sources of clean energy such as wind and solar will continue to be more important near-term approaches to addressing the world's sustainable energy needs.

The recent success of the Lawrence Livermore National Laboratory in generating net energy gain from fusion represents substantial progress from a research standpoint. Viable commercial fusion is still a long way off, but this high-profile event is likely to help sustain already high levels of investment in the fusion startup ecosystem, keeping fusion power front and center as a credible area of sustainable alternative energy over the long term.

Though this breakthrough was achieved at a federally funded facility, there has recently been substantial private investment in nuclear fusion, often coupled with aggressive timelines for fusion milestones.

Over the last five years, we have tracked 43 deals in fusion startups totaling $4.5 billion. This compares to overall funding levels of $38.6 billion for the entire clean energy vertical, with the solar photovoltaic and grid-scale battery technology segments representing the largest investment areas in the vertical.

The scale of these funding rounds is driven by the significant challenges involved in nuclear fusion development. As a result, the nuclear fusion VC space is dominated by a few very large deals, exemplified by recent fundraising from Commonwealth Fusion Systems ($1.8 billion Series B), Helion Energy ($500 million Series E) and TAE Technologies ($250 million Series G).

Yet these startups continue to face long and unexpected development timelines. Contrast this with more shovel-ready sustainable energy sources, including conventional nuclear fission, and renewable energy sources. While these new areas of development may not hold the same promise of potential, they are nonetheless available now to help address current energy needs, and this will likely be the key driver of continued venture investment at levels above that of nuclear fusion.

There are multiple technological approaches to nuclear fusion, so while the recent net energy gain announcement may not directly benefit fusion startups from a development perspective, it provides a good data point that shows progress is occurring, and acts as a proof of concept for the sector.

Historic investment in fusion has been hampered by long timelines, uncertain likelihood of success and high costs. This milestone does not entirely alleviate these concerns, but it may help assuage investor fears that fusion will never be successfully implemented, and that it will always be 30 years from deployment.

Featured image courtesy of Lawrence Livermore National Laboratory