Fusion energy startup Zap Energy pulls a partial pivot, adding nuclear fission to the mix

No one said building a fusion power plant would be easy. Physicists and engineers have been working for decades to solve this problem. But over the past year or so, fusion startup Zap Energy took a hard look at its path to a viable power plant and decided it would be faster to build a fission power plant first.

Wait, what?

“Fission and merger are two sides of the same coin,” new Zap CEO Zabrina Johal told TechCrunch. “They have a lot of parallel challenges.”

Zap is among the most well-funded merger startups, having raised more than $300 million, so this partial pivot holds a certain amount of shock, no matter how many synergies there are between fission and fusion.

It’s starting to make more sense against the backdrop of rising energy demand from AI data centers, which is expected to triple by 2030. Technology companies are looking for electricity today, and one of the challenges facing all fusion startups is that grid-ready power plants won’t be ready for a few more years – about a decade or more.

“There is not enough power and energy in the world to build all the data centers that are needed,” Joal said. “It meant we needed to pull this off quickly, we needed to get something on the grid today.”

Two ways to split an atom

Fission is commercially viable in an unlikely way. Fusion is the process of combining two atoms as simple as hydrogen, which also releases energy. One experiment was able to produce more energy than the fusion reaction needed to ignite, but it was nowhere near what a power plant would need to produce. Fission splits heavy atoms like uranium to produce energy, and we’ve been doing that since the 1950s.

Despite decades of experience, building cost-effective fission reactors remains a major challenge. Fission startups building small modular reactors (SMR) are relying on mass production to help keep costs down, though that idea has yet to be proven. The benefits from benchmark production can take about ten years to materialize.

Johal said Zap expects to start generating revenue from the new division business within the year. “Our business model does not depend on the production of electrons,” he said. The revenue could come from federal programs from the Department of Defense and the Department of Energy, but could also include “landmark payments” and production capacity set aside for companies that need large amounts of electricity, he said.

Milestone Payments could be an interesting model for Zap and other energy startups to follow.

It’s similar in concept to how ASML outsourced money to Intel, TSMC, and Samsung to develop extra ultraviolet lithography (EUV). Semiconductor manufacturers successfully paid a premium for ASML shares, underwriting R&D under the technology and maintaining capacity once EUV equipment went into production.

But there is an important difference between what Zap is attempting and what ASML has pulled off. When ASML launched its “Innovative Customer Co-Investment Program,” it was clear that the Dutch company was the only show in town – everyone had given up on EUV. In the energy world, technology companies have a variety of technologies and suppliers to choose from. They’ll want to see something special in Zap’s fission proposal before they go up.

Meanwhile, potential buyers will start checking out Zap’s plans. The initial fission reactor will be based on the 4S, a molten salt-cooled design jointly developed by Toshiba and Japan’s energy industry research institute. In the end, it wasn’t built, but Johal said the design comes with “not including intellectual property.”

Johal expects there will be enough demand in the 2030s that Zap will gain a large number of customers, despite being years behind other fission startups. “There won’t be enough reactors in the near future,” he said.

Follow the money

For Zap’s fission gambit to pay off, one of two things must happen: it will have to bring in revenue or new investment.

Given Johal’s comments on government subsidies and historic payments from major energy users, the revenue is an obvious play. The cost of developing a single reactor concept is very high. The cost of developing a second may not be double, but it is almost certainly not free. The more money the better.

Zap isn’t the only fusion company pursuing side businesses to bring in revenue. Commonwealth Fusion Systems and Tokamak Energy sell their high-temperature magnets to other fusion and exploration companies, while others such as TAE and Shine Technologies are in nuclear medicine.

Some of those revenue opportunities are more relevant to the construction of an integrated power plant than others. Zap says its fission system will help it move faster in everything but the fusion reactor itself, including things like materials testing and power systems. The company also says it can get information from regulatory domains, although Johal said this is more about building relationships with regulators than navigating specific regulations. The Nuclear Regulatory Commission, the government’s watchdog agency, has given fusion companies a different set of guidelines. For all their similarities, fusion and fission are still very different technologies.

Or maybe Zap won’t need new capital if it can attract a new class of investors. If Zap can tap into the fission startup frenzy, maybe it can find a way out of existing investors soon. For example, X-energy, which has yet to build a power plant, went public last week in an advanced IPO that brought the company $1 billion.

Much of this assumes that Zap will be able to demonstrate progress in connecting a small modular reactor (SMR) to the grid in the early 2030s.

Zap’s arguments that adding fission to its plate will help it achieve commercial consolidation potential are compelling, but time may prove me wrong. However, it is difficult to reconcile those ambitions with the challenges – and costs – of building a second reactor based on a very different technology. There are enough similarities to prevent this from being a 180, but it’s far enough from Zap’s previous path that it will need to be tread carefully to make sure it doesn’t turn into a permanent detour.