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With the recent breakthrough in fusion energy technology, the debate around the feasibility of nuclear fusion as a commercialized energy source may leave investors wondering, is it a holy grail or a pipe dream? Global Head of Sustainability Research and North American Clean Energy Research Stephen Byrd and Head of Thematic Research in Europe Ed Stanley discuss.----- Transcript -----Stephen Byrd: Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research and North American Clean Energy Research. Ed Stanley: And I'm Ed Stanley, Morgan Stanley's Head of Thematic Research in Europe. Stephen Byrd: And on the special episode of Thoughts on the Market, we'll discuss the potential of nuclear fusion technology in light of a key recent breakthrough in the space. It's Tuesday, December 20th, at 10 a.m. in New York. Ed Stanley: And 2 p.m. in London. Stephen Byrd: Ed, you recently came to this podcast to discuss your team's work on "Earthshots", technologies that can accelerate the pace of decarbonization and mitigate some of the climate change that's occurring as a result of greenhouse gas emissions, trapping the sun's heat. In a sense, Earthshots can be defined as urgent solutions to an intensifying climate crisis and nuclear fusion as one of these potential radical decarbonization technologies. So, Ed, I wondered if you could just start by explaining how nuclear fusion fits into your excellent Earthshots framework. Ed Stanley: Absolutely. So in Earthshots we laid out six technologies we thought could be truly revolutionary and changed the course of decarbonization. Three of those were environmental and three were biological innovations. In order of investability, horizon carbon capture was first, smart grids were next, and then further out was nuclear fusion on the environmental side. In early December the U.S. Department of Energy announced the achievement of fusion ignition at the Lawrence Livermore National Laboratory. So Steve, passing back to you, can you give us a sense of why this was considered such an important moment? Stephen Byrd: Yeah Ed, you know, as you mentioned, ignition was achieved at the government lab. And this is very exciting because this shows the potential for fusion to create net energy as a result of achieving fusion. So essentially what happened was two megajoules of energy went into the process of creating the ignition, and three megajoules of energy were produced as a result. So a very exciting development. But as we'll discuss, a lot of additional milestones yet to achieve. Ed Stanley: And there's been significant debates around nuclear fusion in recent days caused by this. And from the perspective of a seasoned utilities analyst, but also with your ESG hat on, is fusion the Holy Grail it's often touted to be, or do you think it's more of a pipe dream? And compared to nuclear fission, how much of a step change would it be? Stephen Byrd: You know, that's a fascinating question in terms of the long term potential of fusion. I do see immense long term potential for fusion, but I do want to emphasize long term. I think, again, we have many steps to achieve, but let's talk fundamentally about what is so exciting about fusion energy. The first and foremost is abundant energy. As I mentioned, you know, small amount of energy in produces a greater amount of energy out, and this can be scaled up. And so this could create plentiful energy that's exciting. It's no carbon dioxide, that's also very exciting. No long live radioactive waste, add that to the list of exciting things. A very limited risk of proliferation, because fusion does not employ fissile materials like uranium, for example. So tremendous potential, but a long way to go likely until this is actually put into the field. So in the meantime, we have to be looking to other technologies to help with the energy transition. So Ed, just building on what we're going to really need to achieve the energy transition and thinking through the development of fusion, what are some of the upcoming milestones and technology advancements that you're thinking about for the development and deployment of fusion energy? Ed Stanley: The technology milestones to watch for, I think, are generally known and ironically, actually relatively simple for this topic. We need more power out than in, and we need more controlled energy output, and certain technology breakthroughs can help with that. But we also need more time, more money, more computation, more facilities with which to try this technology out. But importantly, I think the next ten years is going to look very different from the last ten years in terms of these milestones and breakthroughs. I think that's going to be formed by four different things: the frequency, geographically, disciplinary and privately. And by those I mean on frequency it took about 25 years for JET in 2020 to break its own output record that it set in 1995. And then all of a sudden in 2021, 22, we saw four more notable records broken. Geographically, two of those records broken were in China, which is incredibly interesting because it shows that international competition is clearly on the rise. Third, we're seeing interdisciplinary breakthroughs to your point on integrating new types of technology. And finally, the emergence of increasingly well-funded private facilities. And this public private competition can and should accelerate the breakthroughs occurring in unexpected locations. But Stephen, I suppose if we cut to the chase on the when, how long do you think commercial scale fusion will take to come to fruition? Stephen Byrd: You know, it's a great question Ed. I think the Department of Energy officials that gave the press release on this technology development highlighted some of the challenges ahead. Let me talk through three big technology challenges that will need to be overcome. The first is what I think of as sort of true net energy production. So I mentioned before that it just took two mega jewels to ignite the fuel and then the output was three megajoules. That's very exciting. However, the total energy needed to power the lasers was 300 megajoules, so a massive amount. So we need to see tremendous efficiency improvements, that's the first challenge. The second challenge would be what we think of as repeatable ignition. That relates to creating a consistent, stable set of fusion, which to date has not been possible. Lastly, for Tokamak Technologies, Tokamaks are essentially magnetic bottles. The crucial element for commercialization is making these high temperature superconducting magnets stronger. That would enable everything else to be smaller and that would lead to cost improvements. So I think we have a long way to go. So Ed, just building on that idea of commercialization, you know, with the economics of fusion technologies looking more attractive now than previously given this breakthrough that we've seen at the U.S. DOE lab, what's happening on the policy and regulatory side. Do you see support for nuclear fusion? And if you do, in which countries do you see that support? Ed Stanley: I mean, it's a great question. And governments and electorates around the world, particularly in Europe, where I'm sitting, have what can only be described as a complicated relationship with nuclear energy. But on support for fusion broadly, yes, I think there is tentative support. It depends on the news flow and I think excitement last week shows exactly that. But personally, I think we are still too early to worry too much about policy and regulation. In simple terms, you can't actually regulate and promote and subsidize something where the technology isn't actually ready yet, which is part of the point you've made throughout. But that question also reminds me of a time about 15 years ago when I received national security clearance to visit the U.K.'s Atomic Energy Authority in Europe. And at that time, they were the clear global leader in fusion research. Obviously, that was hugely exciting as a young teenager. But something that the lead scientist said to me at that point struck me and it remains true today, that no R&D project on the planet receives as much funding relative to its frequency of breakthroughs as Fusion does. Which tells you just how committed that governments and now corporates around the world are in trying to unlock carbon free nuclear waste, free energy. But as you have said, quite rightly, that has taken and it will continue to take patience. Stephen Byrd: That's great. Ed, thanks for taking the time to talk. Ed Stanley: It's great speaking with you, Stephen. Stephen Byrd: As a reminder, if you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcasts app. It helps more people to find the show.