Explainer: Fusion energy & enabling supply chain — the concepts, the economics, and the decision checklist

Global investment in fusion energy surpassed £5.2 billion in 2024—a 40% increase from 2023—signalling that the once-distant promise of limitless clean energy is transitioning from theoretical physics into industrial reality. The United Kingdom, with its Spherical Tokamak for Energy Production (STEP) programme targeting first power by 2040 and a regulatory framework established in 2024, has positioned itself as a global leader in the race to commercialise fusion. For investors evaluating this sector, understanding the enabling supply chain—from superconducting magnets to tritium breeding blankets—is as critical as understanding the fusion reaction itself.

Why It Matters

Fusion energy represents the only scalable, baseload power source capable of delivering terawatt-scale clean electricity without long-lived radioactive waste or greenhouse gas emissions during operation. Unlike fission, fusion fuel—primarily deuterium extracted from seawater and tritium bred from lithium—is virtually inexhaustible. A single kilogram of fusion fuel produces the energy equivalent of 10 million kilograms of fossil fuel, making it transformative for net-zero ambitions.

The UK's commitment to fusion is substantial. The government allocated £650 million to the STEP programme through 2025, with the West Burton site in Nottinghamshire selected in 2024 as the location for the prototype fusion power plant. The UK Atomic Energy Authority (UKAEA) estimates that a mature fusion industry could contribute £3-4 billion annually to the UK economy by 2050 and create over 40,000 high-skilled jobs.

From a climate perspective, the International Energy Agency's Net Zero Emissions scenario requires electricity generation to reach net-zero by 2040 in advanced economies. While renewables will dominate, fusion offers firm, dispatchable power that complements intermittent sources. The Fusion Industry Association's 2024 Global Fusion Industry Report identified 43 private fusion companies worldwide—up from 33 in 2022—with collective private investment exceeding £6.4 billion to date. This acceleration reflects growing confidence that technical breakthhroughs, particularly in high-temperature superconducting (HTS) magnets and plasma confinement, are bringing commercial viability within reach.

For the UK specifically, fusion represents an opportunity to leverage existing nuclear expertise, advanced manufacturing capabilities, and research infrastructure centred at Culham Centre for Fusion Energy. The 2024 Energy Act established fusion as a distinct regulatory category from fission, streamlining licensing pathways and providing regulatory certainty that has attracted international investment.

Key Concepts

Fusion Energy: Nuclear fusion is the process of combining light atomic nuclei—typically deuterium and tritium—to form heavier nuclei, releasing enormous quantities of energy. Unlike fission, which splits heavy atoms, fusion produces no high-level radioactive waste and carries no risk of meltdown. The primary engineering challenge is achieving and sustaining the extreme temperatures (>100 million °C) required for plasma confinement, typically using magnetic fields in tokamak or stellarator configurations.

Virtual Power Plant (VPP): A VPP is a network of distributed energy resources—including generation, storage, and demand response assets—orchestrated through software to function as a single dispatchable power plant. For fusion, VPPs become relevant during the transition period when early fusion plants may operate alongside renewables, providing grid services that maximise the value of intermittent clean energy. VPPs can aggregate fusion output with storage and flexible loads to optimise grid stability.

CAPEX (Capital Expenditure): The upfront investment required to construct a fusion power plant. Current estimates place first-of-a-kind (FOAK) fusion plant CAPEX at £10-20 billion, with nth-of-a-kind (NOAK) plants potentially achieving costs of £3-5 billion through learning curves and supply chain maturation. CAPEX intensity is the primary barrier to commercialisation, driving the importance of supply chain development in reducing costs.

Scope 3 Emissions: These are indirect emissions occurring in a company's value chain, both upstream (supply chain) and downstream (product use). For fusion, Scope 3 considerations include emissions from manufacturing superconducting materials, concrete production for facilities, and transportation of components. While fusion operation is emissions-free, lifecycle assessments must account for embodied carbon in construction and decommissioning.

Additionality: In carbon markets and renewable energy procurement, additionality refers to whether a project creates emissions reductions that would not have occurred otherwise. For fusion investors, additionality considerations apply when structuring green financing instruments or claiming sustainability benefits—fusion projects must demonstrate that investment is enabling new clean capacity rather than substituting for existing commitments.

PPA (Power Purchase Agreement): A long-term contract between an electricity generator and a buyer, typically spanning 10-25 years, that guarantees a price for power output. PPAs are critical financing mechanisms for capital-intensive energy projects. Early fusion developers are already exploring PPA structures with industrial off-takers and utilities, though the extended development timelines mean most current agreements are framework contracts or letters of intent rather than binding commitments.

What's Working and What Isn't

What's Working

High-Temperature Superconducting Magnets: The development of HTS magnets using rare-earth barium copper oxide (REBCO) tape has been transformational. Commonwealth Fusion Systems demonstrated a 20-tesla magnet in 2021—the strongest fusion-relevant magnet ever built—using HTS technology that enables smaller, more economical reactor designs. Tokamak Energy in the UK has similarly advanced HTS magnet technology, achieving sustained magnetic fields in compact spherical tokamak configurations. These advances reduce the physical footprint and capital cost of fusion systems substantially.

Private-Public Partnership Models: The UK's approach of combining public research funding with private sector commercialisation is proving effective. The Fusion Futures Programme, launched in 2024, provides £2 million grants to SMEs developing enabling technologies, while the STEP programme partners with industry for component development. This model de-risks private investment while accelerating technology transfer from research to commercial applications.

Regulatory Clarity: The UK's decision to regulate fusion under the Environment Agency rather than the nuclear regulatory framework applicable to fission has reduced perceived risk and licensing uncertainty. The 2024 regulatory framework clarified that fusion facilities will not require the same security provisions as fission plants, given the fundamental differences in risk profile. This regulatory innovation has made the UK an attractive jurisdiction for fusion investment.

Advanced Manufacturing Supply Chains: Companies like Assystem and Sheffield Forgemasters are already developing manufacturing capabilities for fusion components, including vacuum vessels and magnet support structures. The UK's existing nuclear and aerospace supply chains provide a foundation for fusion manufacturing, with established quality assurance processes and precision engineering expertise.

What Isn't Working

Tritium Supply Constraints: Tritium, one of the two primary fusion fuels, is radioactive with a half-life of 12.3 years and is not naturally abundant. Current global tritium inventory, produced primarily as a byproduct of Canadian CANDU reactors, is approximately 25 kilograms—sufficient for only a few reactor startups. Fusion plants must breed their own tritium from lithium in blankets surrounding the plasma, but this breeding technology remains unproven at scale. Tritium supply represents a critical bottleneck that could delay commercialisation if not resolved.

Material Qualification Timelines: The extreme environment inside a fusion reactor—intense neutron bombardment, high temperatures, and electromagnetic fields—requires materials with unprecedented performance characteristics. Qualifying new materials for nuclear applications typically requires 10-15 years of testing and certification. While the reduced regulatory burden for fusion accelerates some aspects, the fundamental materials science validation cannot be shortened without compromising safety margins.

Integration with Existing Grid Infrastructure: Fusion plants will produce baseload power, but current grid planning in the UK and Europe prioritises flexibility and intermittency management for renewables. The business case for fusion depends on maintaining high capacity factors, yet market designs increasingly reward dispatchability over baseload operation. Without market reforms or capacity payment mechanisms, early fusion plants may face challenging economics despite technical success.

Cost Uncertainty for First-of-a-Kind Plants: While NOAK cost projections are encouraging, FOAK plants inherently carry substantial cost and schedule risk. Historical experience with fission megaprojects—including significant overruns at Flamanville, Olkiluoto, and Hinkley Point C—creates investor scepticism about capital cost projections for novel nuclear technologies.

Key Players

Established Leaders

1. UK Atomic Energy Authority (UKAEA): The UK government agency responsible for fusion research, operating the Culham Centre for Fusion Energy and leading the STEP programme. UKAEA employs over 2,000 staff and manages the UK's JET (Joint European Torus) facility.

2. Tokamak Energy: Oxford-based company developing compact spherical tokamaks with HTS magnets. Founded in 2009, Tokamak Energy has raised over £200 million and aims to demonstrate net energy gain in its ST80-HTS device.

3. General Atomics: US-based company with decades of fusion research experience, supplying critical components to ITER and operating the DIII-D National Fusion Facility. A major supplier of fusion-relevant hardware globally.

4. Framatome: French nuclear engineering company developing fusion-relevant components including remote handling systems and tritium breeding blanket technologies. A key industrial partner for European fusion programmes.

5. Mitsubishi Heavy Industries: Japanese industrial giant with extensive fusion component manufacturing experience, supplying major systems to ITER and developing its own fusion technology programmes.

Emerging Startups

1. First Light Fusion: Oxford-based startup pursuing inertial confinement fusion using projectile-driven implosion. Achieved fusion in 2022 and is developing a pilot plant targeting 2030s operation.

2. Pulsar Fusion: Bletchley-based company developing fusion propulsion for space applications alongside terrestrial energy systems, with plasma testing underway and a direct fusion drive planned for 2027.

3. Renaissance Fusion: European startup developing stellarator designs with HTS magnets, offering an alternative to the tokamak approach with potentially continuous operation advantages.

4. Zap Energy: US company developing sheared-flow Z-pinch fusion, which requires no superconducting magnets—a potentially lower-cost path to commercial fusion.

5. Kyoto Fusioneering: Japanese startup specialising in fusion plant engineering and enabling technologies, including blanket systems and power conversion equipment, with a UK presence established in 2024.

Key Investors & Funders

1. UK Research and Innovation (UKRI): The primary public funder of fusion research in the UK, channelling over £1 billion into fusion programmes through 2030.

2. Breakthrough Energy Ventures: Bill Gates-backed climate investment fund that has invested in Commonwealth Fusion Systems and other fusion startups, with a thesis on capital-intensive climate solutions.

3. Legal & General Capital: Major UK institutional investor with investments in Tokamak Energy, representing growing interest from pension funds in long-duration climate infrastructure.

4. Chevron Technology Ventures: Oil major investing in fusion as a potential future energy source, providing both capital and industrial expertise to startups.

5. Temasek Holdings: Singapore sovereign wealth fund that has invested in multiple fusion companies, reflecting Asian interest in next-generation energy technologies.

Examples

1. UKAEA's MAST Upgrade at Culham: The Mega Amp Spherical Tokamak Upgrade achieved first plasma in 2020 and has since demonstrated sustained plasma operations at parameters relevant to power plant designs. In 2024, MAST-U achieved record-breaking exhaust heat management using the Super-X divertor configuration, reducing plasma exhaust temperatures by a factor of ten. This breakthrough addresses one of fusion's most challenging engineering problems—managing the extreme heat loads at plasma-facing components. The facility operates with £55 million annual funding and has generated over 200 peer-reviewed publications since commissioning.

2. First Light Fusion's Machine 3 at Kidlington: In November 2022, First Light Fusion became the first private company to demonstrate fusion using inertial confinement, verified independently by UKAEA. The company's projectile fusion approach accelerates a projectile to hypervelocity, creating implosion conditions sufficient for fusion without lasers or magnetic confinement. Their Machine 3 facility has conducted over 1,000 experiments, with pilot plant engineering design underway for a facility targeting 150 MW electrical output. First Light has raised £85 million to date and employs 120 staff at its Oxfordshire headquarters.

3. Sheffield Forgemasters' Fusion Component Manufacturing: Sheffield Forgemasters, acquired by the UK government in 2021 for £2.56 million, has invested in fusion-specific manufacturing capabilities including large-scale vacuum vessel forging. The company completed prototype fusion reactor vessel sections in 2024, demonstrating the UK's industrial capacity for fusion manufacturing. Their 10,000-tonne forging press—one of the largest in Europe—can produce monolithic components that reduce assembly complexity and improve structural integrity.

Action Checklist

• Assess portfolio exposure to fusion-enabling technologies including superconducting materials, vacuum systems, and remote handling equipment
• Evaluate supply chain investment opportunities in tritium handling, lithium processing, and beryllium manufacturing
• Monitor STEP programme procurement announcements for component supply opportunities through UKAEA's supply chain portal
• Review regulatory developments in fusion licensing across jurisdictions to identify favourable investment environments
• Conduct due diligence on fusion startups' technical approaches, focusing on plasma confinement method, magnet technology, and materials strategy
• Engage with universities and research institutions on technology transfer opportunities for spin-off applications
• Analyse grid integration requirements and market design reforms needed to accommodate baseload fusion generation
• Consider infrastructure investments in sites with fusion development potential, particularly those with grid connections and water access
• Develop scenarios for portfolio decarbonisation that incorporate fusion timelines alongside renewable deployment
• Establish relationships with key fusion supply chain companies to understand component readiness levels and manufacturing scale-up requirements

FAQ

Q: When will commercial fusion power be available? A: Most credible projections place first grid-connected fusion electricity in the 2035-2040 window, with the UK's STEP programme targeting 2040. However, "commercial" viability—meaning cost-competitive with alternatives—may require additional years of operational learning and supply chain maturation. The Fusion Industry Association's 2024 survey found that 65% of fusion companies expect to deliver electricity to the grid by 2035, though industry optimism has historically exceeded delivery. Investors should plan for a 2040-2045 timeframe for meaningful commercial deployment while recognising that breakthrough pace has accelerated since 2020.

Q: How does fusion compare to advanced fission technologies like small modular reactors (SMRs)? A: Fusion and advanced fission occupy different positions on the technology readiness scale. SMRs are entering licensing and construction phases now, with first UK deployments possible by 2035. Fusion remains 10-15 years behind on the commercialisation pathway. However, fusion offers fundamental advantages: no long-lived radioactive waste, no meltdown risk, and no weapons proliferation concerns. From a regulatory and public acceptance perspective, these differences may prove decisive. The technologies are likely complementary rather than competitive, with SMRs providing near-term low-carbon capacity while fusion scales for mid-century deployment.

Q: What are the primary investment risks in the fusion sector? A: Key risks include technical execution risk (achieving sustained net energy gain), regulatory risk (potential changes to favourable fusion regulation), competition risk (multiple technical approaches with uncertain winners), and timeline risk (historical pattern of delays in fusion development). Supply chain investments may offer lower risk than direct fusion development bets, as enabling technologies often have applications beyond fusion. Investors should also consider concentration risk—many fusion companies are pre-revenue with extended cash burn requirements before commercialisation.

Q: How much capital is required to bring fusion to commercialisation? A: Industry estimates suggest £15-25 billion in cumulative investment is needed to achieve first commercial fusion power, with substantially more required for fleet deployment. Public funding through programmes like ITER (€20 billion total project cost) and national initiatives provides foundational research, while private capital is increasingly funding the commercialisation pathway. For individual fusion companies, reaching demonstration phase typically requires £500 million to £2 billion, with pilot plant construction adding £2-5 billion. The capital intensity favours strategic partnerships and patient capital structures over traditional venture timelines.

Q: What Scope 3 considerations apply to fusion energy investments? A: While fusion operation produces no direct emissions, lifecycle assessments must account for embodied carbon in construction materials (particularly concrete and steel), manufacturing of superconducting magnets (energy-intensive REBCO production), transportation of components, and decommissioning. Early estimates suggest fusion lifecycle emissions of 5-15 gCO2e/kWh—comparable to wind and solar, and far below fossil fuels. Investors should request lifecycle assessment data from fusion developers and consider supply chain decarbonisation strategies for component manufacturing to maximise climate benefits.

Sources

• Fusion Industry Association. "The Global Fusion Industry in 2024." Annual industry report, July 2024.
• UK Atomic Energy Authority. "STEP Programme: Towards Commercial Fusion Energy." Programme documentation, 2024.
• International Energy Agency. "Net Zero by 2050: A Roadmap for the Global Energy Sector." IEA Special Report, updated 2024.
• UK Government Department for Energy Security and Net Zero. "Towards Fusion Energy: The UK Fusion Strategy." Policy paper, 2024.
• Nature Energy. "High-temperature superconducting magnets for fusion: progress and challenges." Vol. 9, 2024.
• UK Parliament POST. "Fusion Energy." POSTnote 697, 2024.
• Energy Transitions Commission. "The Role of Fusion in Deep Decarbonisation Pathways." Working paper, 2024.