In Conversation: Clea Kolster, Lowercarbon Capital

18 June 2024

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In 2022 Lowercarbon Capital raised a $250m fund called Q>1 to back the world’s leading fusion companies, saying “the science of fusion is no longer a pipe dream” that “for many approaches, the physics is (mostly) understood, and the focus is upon building the reactors, scaling up the power banks, and engineering solutions to harness the energy generated” and describing a Q>1 fusion energy gain as “an inevitability.”

By the start of this year, Lowercarbon had invested in 6 fusion companies, backing a broad spread of approaches with distinct technical pathways, uncorrelated physics and engineering risks, varying timelines, and diverse capital needs.

FusionX recently spoke with Clea Kolster, Partner and Head of Science at Lowercarbon Capital, and lead on all the firm’s technical research, development, and diligence. We explored Dr Kolster’s path to fusion, the firm’s fusion strategy, and the financing of fusion’s path to commercialisation.

[FusionX]: Clea  your academic career culminated with a PhD in mechanical engineering from Imperial College in London focused on carbon capture and storage…    How did you arrive in California as partner and head of science at Lowercarbon Capital, and why has Lowercarbon Capital invested so enthusiastically in fusion?

[Clea Kolster]: I’ll start out by saying that I never thought that I would be a venture capitalist, but here I am; no offense to the other venture capitalists. Like you said, I did a PhD in London and my strategy with that was that I was on a pathway to work on clean energy technology and policy and ultimately marry those two things. I worked on some clean energy solutions in sub-Saharan Africa.

And eventually, I came over back to the US, to California, to work at a firm called E3. E3 is specialized in using mathematical optimization models to inform utilities, state agencies, and governments on their decarbonization strategies, but also their energy and space planning.  It’s fascinating work.  But what I realized being there were a few things.

First, that it was great that there were states and governments that had progressive policies to invest in decarbonization solutions, but really the thing that made it work the fastest, and folks invest the fastest, was because solar winds and energy storage started to get cheap. And that’s what was driving a lot of investment in states that didn’t have any climate policy.

The second thing that became obvious, not just to me, was that energy demand was about to start taking off, multiplication factors of 3 to 5x, and that before taking into account the most recent projections around energy demand for computation.

The third thing was that, while wind, solar, and energy storage were going to make up a substantial portion of our energy mix, that wasn’t going to be quite enough. And to assume that you’d have clean energy for all we would need more and better clean energy technologies that were ‘on demand’.

Fusion is a really exciting prospect for that. So in 2020, somewhat serendipitously, I joined Lowercarbon as they were getting started, bringing together the technological side and the investment side. We have just over $2 billion in AUM. We back companies and people that are building breakthrough technologies and business models that we expect will generate outsized returns while slashing CO2 emissions, removing CO2 from the atmosphere and buying more time.

And Fusion has been core to that strategy; we have now made six investments.

[FX] We’re seeing momentum building in fusion, there are many more credible shots on goal, a sense that fusion is coming…  What made Lowercarbon commit to fusion and how did you decide where to allocate among the several different approaches and many dozens of companies?

[CK] We are looking at many vertical curves that fusion is both benefiting from and creating. A lot of that has to do with new materials like high-temperature superconducting magnets that are way stronger than anything else we ever had, and actually make it possible to imagine a tokamak that is of a palatable size, as Commonwealth Fusion Systems [CFS] is currently building.

And then computational power that means things like the stellarator – that was otherwise not really conceivable to model let alone make – are now simulatable.

So what are we looking for when investing in fusion companies?

I’ll go through a little bit of the history of what we have invested and why. So in 2019, we had the opportunity to invest in CFS. The most well-known and most well-researched fusion reactor in the world, the tokamak. And they’re making very exciting, fast progress in building the very first one.

The second investment was in a company called Zap Energy, pursuing the z-pinch approach, which I think was the first fusion approach designed. And the company Zap Energy is being led by the leading thinkers, the leading academics exploring the z-pinch.

The third is in a company called Avalanche Energy, a much smaller system relying on different physics, and also pursuing an approach that someone had simulated in the 90s and ultimately wasn’t picked up because most fusion concepts haven’t been picked up for many decades.  Avalanche are applying very similar learnings from vertical curves, new materials, computational capabilities, and then pursuing that.

So each of those three are looking at very different system sizes, which I think is very cool, and also different supply chains with some relying on magnets, some not.

Also at that point, there were a number of technological breakthroughs within national labs, and also within tech companies. There was a fast-growing base of private companies getting started, which ultimately means that that pace of progress is all of a sudden unprecedented. That was really kind of a catalyst to us raising a fusion fund. We raised a pretty considerable, $250 million in private capital to go towards fusion.

And so the next three companies that we invested in… The first, which was the fourth, is a company called Xcimer Energy. It is pursuing a laser-based approach relying on very similar physics to what was demonstrated at the National Ignition Facility, but using cheap gas lasers instead of solid-state glass ones.

The next is an stellarator-based approach in Thea Energy, led by also a leading stellarator academic, David Gates, and turning what has otherwise been a very complex materials and manufacturing problem into a controls one.

And then the sixth is in a company called Renaissance Fusion, based in France, that is turning the manufacturing challenge of magnetic fusion energy on its head in developing novel laser-patterning approaches and using new deposition techniques to make very cheap elements, and ultimately, initially applying that to stellarator-based approach.

So those are the six. And I think what gives me so much hope and excitement is that I get to see what happens in the companies and the pace of progress is enormous. It far, far outstrips anything that we could have imagined.

Ultimately, what we expect to see is breakeven in at least one, if not multiple private fusion companies in the next few years, and a plan for some often to build a pilot, commercial facility within the next decade, and that is starting to feel very real. There are also many new companies being formed that also fall on that Lawson Criterion curve, and pursuing, again, more shots on goal that are plausible.

[FX] So let’s talk about the challenge of financing this. These are long-term, capital-intensive, relatively high-risk projects….

[CK] On the capital question a lot of what we talk about is how to get over what is called the valley of death in general of hard tech. What is particularly interesting about fusion and also has its analogies across other climate-tech industries and hard-tech is that there are a lot of what you might call ‘binary outcome milestones’, milestones that need to be met to be able to get to the next one. Now, that doesn’t necessarily hold for all of them. There are some that happen in parallel, but ultimately there is some clear progression that needs to happen.

I think CFS has done a fantastic job of creating that narrative and setting out those milestones. But what I’ll note about that is that for the capital to come – and the capital is coming, we’ve seen, across our portfolio companies and more, the ability to raise subsequent rounds of financing,  but we know that we need many more billions of dollars of financing, if not an order of magnitude greater than that – we are going to need some very good storytelling around the risks and de-risking of fusion. And that will require folks in leadership to be able to do that, and to present a real breakdown of what those milestones are.

But when we think about where the money will come for fusion,  public markets have something like 15x more than private markets and that probably means that at some point for a fusion company to raise a lot, a lot of money, we will need to see IPOs. And I think there’s some suspicion that that could happen upon demonstration of breakeven.

But the industry will still need to show what happens after breakeven and what the milestones are. So that it is better understood for both the wider public and those public markets: what [public markets] capital will be allocated to, and what to expect between that time and a commercial fusion company.

[FX] But what do you think it would take to stimulate more capital? Is it going to be getting past break-even, or do you think that we can sustain funding before that?

[CK] I think that’ll certainly be a huge catalyst. But if everybody shares the message that fusion is not 30 years away, but in fact the path to commercial fusion is more like a decade away or less. That would be a great place to start.

[FX] Investors in fusion tend to be from funds who have longer-term, for example climate, objectives? What’s it going to take to really ‘mainstream’ the investment opportunity?

[CK] Our funds are our standard venture capital fund length of 10 years [perhaps with] with some extension [but generally] 10 years.

But our investment strategy is to invest in climate tech. Yes, because obviously that is the thing that we need  but even more importantly, because we fundamentally believe that those are the industries and the companies and technologies that will bring the most outsized returns to our investors. And my personal goal is to make sure that every investor understands that this is the opportunity for them to make the most money, so that more money is put into it.

At Lowercarbon, as with many others invested in fusion, a lot of our investment partners are either technical or have technical backgrounds. So some of the initial hurdles perhaps were easier to overcome in terms of understanding the opportunity.

That said, again, coming back to the story-telling piece, if we can make it clear what those milestones are, I’m certain that we can convince the broader investment community that fusion, and broader climate-tech, are the things to be investing in to make the largest returns.

And in fact, it’s not waiting five years until we see breakeven to do that, because at that point, they will have missed the boat. It’s today. Because these companies are very well on track to doing that, and have a plan for [fusion energy’s] commercialization.