NET Power - Q2 2024

Transcript

Operator (participant)

Greetings. Welcome to the NET Power second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Bryce Mendes, Director of Investor Relations. Please go ahead.

Bryce Mendes (Director of Investor Relations)

Good morning, everyone, and welcome to NET Power's second quarter 2024 earnings conference call. With me on the call today, we have our Chief Executive Officer, Danny Rice, our President and Chief Operating Officer, Brian Allen, and our Chief Financial Officer, Akash Patel. Today, we issued our earnings release for the second quarter of 2024, which can be found on our investor relations website, along with this presentation at ir.netpower.com. During this call, our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I will now pass it over to Danny Rice, NET Power's Chief Executive Officer.

Danny Rice (CEO)

Thanks, Bryce, and thanks everybody for joining us today. On the call, we'll reference several slides from our Q2 presentation, and we encourage you to have it handy. It was a productive quarter for the NET Power team as we continue to make steady progress across our three strategic pillars and our 2024 milestones. As we've mentioned on previous calls, we're focused on several key initiatives. First and foremost is commercializing, improving our clean power technology at the utility scale. Our first utility scale plant remains on schedule for startup between the back half of 2027 and first half of 2028. To ensure our first plant performs as designed, this fall, Baker Hughes and NET Power will commence the first phase of a rigorous turboexpander equipment validation program at our La Porte demonstration facility.

Second, we're building out our project backlog through our origination efforts across competitive power markets in the U.S. and Canada. These originated projects were originally intended to accelerate early plant deployments after serial number one comes online. But as we've seen over the last year or two, the U.S. is entering a period of meaningful load growth that remains well short of new, affordable, clean, firm power resources, and the market opportunity for NET Power plants to meet this load growth is something our origination team is actively pursuing. And third, we're standing up our strategic supply chain partnerships to ensure we have the ability to deploy dozens of these plants per year by the early part of next decade to meet the growing demand for clean, firm power.

Let me spend a couple of minutes on the macro and our competitive positioning before turning it over to Brian and Akash for the operational and financial updates. For the first time in a long time, we're seeing around-the-clock load growth, primarily from continued electrification of everything and new demand from things like data centers. We believe clean, 24/7 firm power solutions like ours will make or break the world's ability to achieve its energy needs economically without compromising its environmental goals. As we sit here today and assess the competitive landscape, we continue to see data points and anecdotal evidence that we're designing the most cost-effective, clean power solution in the world.

Given the IP moat we've built around this business, in the decade or so, the team has poured into developing and refining our clean power plant, we think we should have a meaningful head start through 2040. The supply chain constraints facing the entire power industry, carbon emitting or not, is shifting the market's focus to 2028-2030 and beyond, which bodes well for us to capture this demand as we scale into full-scale manufacturing mode shortly after our first plant is online. In terms of our competitive positioning, we still see NET Power as the most economical, clean, firm solution.

For the first time ever, load growth for 24/7 power means that Levelized Cost of Energy, or LCOE, must be assessed on a 24/7, 365 basis, and we believe our solution will be more economic than new nuclear renewables with long-duration energy, battery storage, renewables with gas peakers, and gas plants with post-combustion carbon capture. Our early plants will be our most expensive, and for these, we're targeting geographies with the most favorable economics, excellent spark spreads, low cost to sequester the CO2, and robust government incentives. Regions like MISO, Alberta, and certain parts of ERCOT fit the bill. That said, we believe our first plant, which will likely be the most expensive one we ever built, will still be highly competitive with any other clean, firm power alternative.

That's a very profound and important starting point, and as we step into manufacturing mode, we are targeting an LCOE of $60 per MWh in many places across North America, which we think unlocks an obtainable market of 800-1,000 NET Power plants. This $60 includes the 45Q benefit, which amounts to approximately $20 per MWh. So on an unsubsidized basis, we're targeting $80 per MWh or less. Today, average U.S. power prices are approaching $60 per MWh, with unprecedented load growth coming down the pike. Without sufficient generation capacity being added, we think grid reliability becomes compromised, and power prices move higher. Neither of those are great outcomes for consumers, people, and small businesses alike, and we're seeing more tangible evidence across the U.S. of the consequences of underinvestment in large-scale firm capacity.

Just two weeks ago, PJM's capacity auction, for example, for 2025-2026 experienced major shortfall in reliable power bidding, resulting in a 9x spike in capacity prices to over $280 per MW per day, the highest capacity prices PJM has ever seen. This comes on the heels of PJM and other system operators' reliability reports indicating there's more load growth than firm capacity being added. All to say, the results of the PJM auctions aren't a surprise to those following this space. But what is surprising is the disproportionate amount of resources and capital spent performing triage instead of addressing the underlying problem. We also don't think that forward prices properly reflect the marginal cost of new capacity to meet baseload demand growth.

For new combined cycle gas plants, for example, we're hearing through the market costs in the $1,500-$2,000 per kW range, which is nearly 2x the cost of a new gas plant compared to several years ago. That's consistent with what we've been seeing on our side. All to say, inflation across the traditional generation sector really narrows the economic gap between a carbon-emitting plant and a clean NET Power plant. Carbon intensity-wise, the U.S. grid today is at around 370 g/kWh. NET Power is 40 g/kWh-75 g/kWh.

We comply with the EPA's proposed Section 111(b) and (d) rules and installing NET Power from here on out in the U.S. would be a 75% reduction in U.S. power emissions, while improving grid reliability and ensuring power prices not much higher than where they are today. Just given the underinvestment in firm resources over the last 5-10 years, there's a lot of capital and attention on batteries, which is more triage for grid reliability than it is a sustainable, low-cost solution. Batteries are inherently very expensive at over $200 per MWh, but by further reducing the economic uptime that a new 24/7 power plant needs to justify being built, batteries only make this problem worse. And if the end goal is clean, reliable, affordable power, NET Power is far and away a better, more complete solution.

But absent a total shift across policy, capital markets, and market demand, we don't see firm 24/7 resources being added fast enough, and we think power prices should be moving much higher. This, in turn, will only mean that our plants are more economic, thus supporting our commercial strategy to lead with origination and set the table for future deployments, where our clean firm power plants can generate highly economic returns to the NET Power plant owners while delivering lower cost power than prevailing market prices. On the origination front, we continue to make significant progress across North American markets. Slide seven highlights the regions we're spending a lot of our time originating future projects. As I've mentioned in the past, there are three main criteria to screen to ensure a NET Power plant's success.

First is access to natural gas, second is a market or designated market for the power, and third is ample CO2 storage, whether it's through permanent sequestration or enhanced oil recovery. Now, there are multiple regions across North America that check these three boxes, in addition to having supportive policies that further enhance the economic attractiveness of these prospective plants. As we've mentioned before, there are approximately 22 states in the U.S., plus several provinces in western Canada, that contain sedimentary rocks for geologic sequestration. Most of these territories happen to be in competitive power markets, which is where we're focusing most of our origination efforts today. And you can see on this slide where our team is focusing their efforts.

One of the more interesting markets is Alberta, which has the right elements for success and we believe could be one of the most attractive places in the world for us to establish some large-scale NET Power, clean energy hubs. We're currently in the project feasibility phase of the origination timeline here, which includes conducting site-specific studies with our first partner in the region, commencement of a region-specific plant design, and initiating regulatory dialogue at both the provincial and federal levels. We're really excited about the Alberta market and look forward to sharing our progress going forward. Elsewhere, our Northern MISO project is progressing well. As a reminder, we filed our MISO interconnect application in the second quarter of 2024.

Additionally, our sequestration partner has filed for its Class VI CO2 sequestration permit, and with these items underway, we've begun the first phase of stakeholder engagement at the local and state levels. On a final note, before turning it over to Brian, I'm excited to announce that NET Power officially opened its Houston office in July. We look forward to continuing to grow the NET Power team down in Houston, which has long served as an epicenter for energy industry talent. I'll now hand it over to Brian to give an operational update.

Brian Allen (President and COO)

Thanks, Danny. Turning to slide nine in the presentation. As we have mentioned in previous calls, the upcoming testing campaigns at La Porte will focus on validating and de-risking the Baker Hughes utility-scale turboexpander and optimizing its operation within our cycle. The campaigns will follow four primary phases and will continue through 2026. We've added the expected timing for each of the four phases on the right-hand side of this slide. The first phase of testing, which will result in combustor burner down selection, is on schedule to begin in the fourth quarter of this year. The second phase is expected to begin in 2025 and will take the selected oxy-fuel burner from phase one and test it alongside a combustion liner and other hardware to form a single demonstrator size combustion can.

The third phase of testing is expected to begin in late 2025 or early 2026 and will involve scaling the demonstrator-sized combustor can from phase 2 to utility scale can with clusters of burners... and then testing it with the goal of learning and optimizing the design of the utility scale combustor that will operate at Project Permian and beyond. Finally, the fourth phase is expected to start in 2026 and will test the full demonstrator turboexpander, including the validation of materials and design architecture to be used on the turboexpander for Project Permian. Turning to slide 10, the team continues to make steady progress on site upgrades to our La Porte demonstration facility in preparation for our upcoming equipment validation with Baker Hughes.

To support Baker's combustor test requirements, we have added additional natural gas, oxidant, and CO2 piping that run to our combustor test rig building, which will host Baker's combustor test rig. Based on lessons learned from NET Power's previous La Porte testing, we have installed upgraded flow measurement and other instrumentation to enhance our data acquisition that will ultimately help us improve our utility scale control system. We continue to bolster NET Power's engineering team and our partner, Constellation's site operations staff, ahead of the phase one equipment validation, set to start in the fourth quarter of this year. The Baker Hughes combustor test rig is shown on the right-hand side of slide 10. It is currently located at Baker's Florence facility and is expected to ship into La Porte in Q3.

Due to the plant upgrades we are making, we can vary the pressure, temperature, and flow of the CO2, oxidant, and natural gas that feed the combustor test rig to simulate the range of operating conditions that Baker expects to see in the actual turboexpander. Phase 1 testing will commence in Q4, beginning with ignition testing and ending when we and Baker have operated each of the candidate burners through a full range of operational mapping and have made a final down selection. Phase 2 will begin next year using the selected burner and will test a La Porte size combustor can. Next, I will turn to slide 11 for the update on Project Permian. The project remains on schedule, with initial power generation expected to occur between the second half of 2027 and first half of 2028.

During the second quarter of 2024, we signed a limited notice to proceed with Baker Hughes for the release of all long lead material required to maintain an on-schedule delivery of the utility scale turboexpander to Project Permian. Our key upcoming 2024 milestones are highlighted on the right-hand side of the slide. We are advancing our front-end engineering design, or FEED, with Zachry Group. We recently met with John Zachry and his leadership team to discuss the court-approved settlement between his company and the Golden Pass LNG project. We had a constructive dialogue and are pleased that we will continue the same EPC contracting approach we initially envisioned when we started the FEED. Zachry continues the FEED engineering to firm up equipment quotes and optimize the plant layout.

We have had several collaborative value engineering sessions to optimize the piping design and reduce the amount of CO2 volume in the system and reduce the quantity and cost of high-pressure pipe. Zachry will deliver their FEED estimate and schedule expected in Q4 of this year. To maintain the project schedule, we will continue to order long lead components throughout 2024. We and Zachry are finalizing purchases for other long leads that have been identified, including 345 kV circuit breakers, a generator step-up transformer, a unit auxiliary transformer, and an air separation unit transformer. Other items may be added to this list as necessary to ensure we preserve the Project Permian schedule. Additionally, we recently finalized our ASU pre-FEED and have begun our ASU FEED with a standard 2 by 50% ASU plant configuration.

So instead of a single large ASU unit supplying all of our required oxygen, there will be two smaller ASUs that will together account for the full oxygen input requirements for the plant. The two smaller ASUs have better operating flexibility to support our various power plant operating modes, including ramping up and down to support grid requirements and optimizing liquid oxygen storage to serve as our backup oxygen supply and long-duration power storage. This ASU configuration decision was carefully made, considering the trade-off of many factors and ensures success for both Project Permian and other future projects. Many of our target customer geographies are located inland, away from major ports and waterways, so this decision will better support truckable module shipping to a diverse range of customer project sites.

This 2 by 50% configuration is also a better fit within ASU provider's standard product offerings and should support modularization and a broader set of competition among their sub-suppliers for equipment like compressors and heat exchangers. With that, I'll pass it off to Akash for the financial updates.

Akash Patel (CFO)

Thanks, Brian. NET Power continues to prudently deploy our capital, ending the second quarter of 2024 with a strong balance sheet, including approximately $609 million of cash and investments. Consistent with the past several quarters, the current interest rate environment has allowed us to put our balance sheet cash to work to offset our corporate spend. In the second quarter, our cash flow used in operations was approximately $8 million, which included a cash payment of more than $3 million under the Baker Hughes JDA.

We expect cash flow used in operations to continue increasing as we build out the organization, progress the joint development program with Baker Hughes, and ramp up activity at La Porte. For the quarter, our total capital expenditures were approximately $8 million, comprised of approximately $4 million of capitalized costs associated with the ongoing Project Permian development activities, and approximately $4 million spent on La Porte modifications and upgrades ahead of testing that is expected to begin in the fourth quarter of this year. NET Power's fully diluted share count was approximately 249 million shares as of June 30th.

This was comprised of approximately 214 million Class A and B vested shares, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, which, if exercised, would give NET Power an additional $225 million of cash, 2.9 million shares subject to earn-outs or vesting requirements, and approximately 12.4 million authorized shares issuable pursuant to the joint development agreement with Baker Hughes. For a detailed breakdown of our diluted share count, please refer to our annual and quarterly financials on file with the SEC. That concludes our prepared remarks. I'll now pass it back to the operator to open up the line for Q&A.

Operator (participant)

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for your questions. Our first questions come from the line of Leo Mariani with ROTH. Please proceed with your questions.

Leo Mariani (Managing Director and Senior Research Analyst)

Yeah, thanks. Just a quick question. Wanted to follow up a little bit here on Project Permian. You spoke to this in your prepared, you know, remarks, but do you envision any change at all in timeline as a result of Zachry's financial issues? You mentioned there are gonna be some, you know, deliverables on the FEED side, you know, later this year. But as you look at the overall timeline in the next year or two, do you not see any change? I mean, was there any change in terms of staffing, you know, that was being supplied, you know, to your project there? Can you speak a little bit more detail on that? That'd be great.

Brian Allen (President and COO)

Yeah, Danny, I'll take that. This is Brian. Yeah, so there's been no impact to the FEED, you know, the whole time this was going on. You know, we're actually embedded in their office with our project team. No change to staffing, no change at all. So really, our... Again, we're not in the EPC phase yet, so it's really mainly engineering taking place. But our meeting was really more about forward-looking, ability to contract the subcontractors, ability to make the purchases, ability to attract the staff, you know, in that future phase, and that's fully in place. So yeah, no, no change in schedule, no slip of any sort, and the FEED has progressed, you know, per the original schedule.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay. No, that's helpful. And then I wanted to jump over to OP1, you know, real quick here. So you mentioned that you guys have a sequestration, you know, partner, you know, lined up for that. Was hoping that you could provide a little bit more, you know, detail around that, you know, in terms of, you know, who that might be. And then I guess just additionally, where are you guys in the process of maybe kind of, you know, selecting the right, you know, customer for that project?

Danny Rice (CEO)

Yeah, Leo, this is Danny. Good to hear from you. Yeah, I think, without getting too deep in the weeds on specifics of, of who the partner is, you know, I, I think one of the things is, is we've started to, to dive deep into just the, the, these origination projects, lining up both partners on the power side, but then also on the subsurface side. You know, I think one of the things that I think everybody in this space is seeing is on the subsurface side, you're really looking at the, the, the, the traditional energy industry folks with that subject matter expertise, so traditional oil and gas companies that are very, very familiar with, just understanding geology.

But I think more importantly is, as you get into whether it's in Northern MISO, Southern MISO or CAISO, you-- there's subject matter expertise across just local geologies in each of these areas. And so it's really finding partners that have deep experience, not just with the rock, but also with being able to work with the permitting agencies, with the states, with the local communities. And so, you know, with this Northern MISO project, it's, it's not a, it's not a company that's from outside the basin. It's one that's been in, in the basin, for a while now, which certainly gives us a little bit of a leg up in, in really understanding just both the, the regulatory process, but also, to, to the point I made earlier on engaging with the local communities and local stakeholders.

It really is a huge advantage as you look at just being able to build that, that social network there. So things are progressing nicely there. And then happy to, happy to hear that second question again, if, if you want some color there.

Leo Mariani (Managing Director and Senior Research Analyst)

Yeah, no, that was very helpful in terms of, you know, the color around the sequestration partner. Was just curious as to kind of where your conversations are with a potential power partner. You know, I don't know if you've maybe kind of, you know, narrowed down some options. I mean, you know, are you, you know, maybe started with a wider funnel and talked to a bunch of folks, and now you've got to narrow down to a handful of partners? Just trying to get a high-level sense of, you know, where you are with potential customer engagement on OP1.

Danny Rice (CEO)

Yeah. The power piece is such an interesting one because I think when we originally started getting into the origination space, we've sort of just assumed that the most logical place to sell this power is into the local merchant markets or under a long-term PPA, but all that's really done through a utility that would become a partner of ours in our origination projects. And I think one of the benefits of us doing origination, it gives us total creative latitude over how do we commercialize this? How do we structure each of these, you know, for all intents and purposes, SPVs that we put around, you know, special purpose vehicles that we put around each of these NET Power clean energy hubs. And so we kind of have total latitude over who do we want to partner with.

Is it gonna be the traditional utility folks in a given region? Is it gonna be bringing in infrastructure capital, and we stand up the team or partner with somebody on the actual operation of the plant? I would say, kind of sitting where we are today, it really varies from region to region. And I think the new thing that's really just popped up, that I think everybody's talked about ad nauseam at this point is just the load growth and just power demand that you're seeing from just new sources of generation that, you know, and this is really data centers that I'm talking about, that have just this insatiable appetite for as much clean, firm power as they can get their hands on.

Obviously, clean, firm power is in very, very just short supply today and certainly going forward to meet their needs. So for us, I think what we've begun to see is it creates really, really unique opportunities for us to be able to underwrite the plants with these long-term fixed price PPAs at really healthy prices if you can put these plants in the right area, right? So certainly this first origination project being in Northern MISO is one of those targeted areas for folks looking to procure power on either a physical basis, so co-location behind the meter with a NET Power plant, but also as a bridge until you can establish these permanent behind the meter solutions, virtual PPAs.

So they're just buying that power within the grid system and then allocating it to their designated data center or just designated load growth. So, long way of saying is, you know, we have a lot of options with what we do with OP1's power, but it's really nice to see a lot more options and a lot more flexibility starting to pop up than we expected even 12 months ago.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay, appreciate it.

Operator (participant)

Thank you. Our next questions come from the line of Thomas Meric with Janney Montgomery Scott. Please proceed with your questions.

Thomas Meric (Director and Equity Research Analyst)

Morning, gentlemen. Thanks for taking the time. A couple for me on Baker supply. Just kind of thinking through gas turbine demand globally, not just for NET Power turbines, but, you know, the build-out of peaker plants, et cetera. How do you think about the surety of your turbine supply with Baker Hughes in this growing demand environment? And, you know, is there room to expand that capacity? And just kind of walk us through some of the, the color around the supply agreement to the extent that you can. Thanks.

Brian Allen (President and COO)

Sure, Thomas, this is Brian. And I think I addressed this a little last time. Certainly they're seeing... Yeah, Baker is seeing the pressure from the aviation industry coming out of COVID. You know, you have a significant amount of airplane and jet engine orders, which, you know, compete for a similar supply chain, and then, of course, the power gen itself picking up. But, you know, overall, that's a much smaller percent of just the total supply chain for things like, you know, forgings and castings and that make up the components within the turbine. You know, look, we have a commercial committee partnership with Baker. We're looking at long-term, you know, forecasting, and this is their business, right? They make sure as we go through the design, that they're not sole sourcing individual sub-suppliers.

You know, this is what they do day in, day out. So, we're confident, having worked with them on the sub-supply chain, that they're securing, that they're leaving themselves options, and that we're not designing something that, let's say, trends off into one-of-a-kind type, you know, designs, material, sub-suppliers. Yeah, so it's really just enhancing who they already work with. It's, it's a similar supply chain. And, yeah, we're confident in what they're building out right now.

Thomas Meric (Director and Equity Research Analyst)

Great. Thank you. And then, Danny, kind of on the heels of Leo's question on OP1, just wanted to kind of ask the, kind of the same question in a different way. But is there any change to your strategy for monetizing originated projects as it relates to, you know, PJM capacity, MISO capacity reform, you know, all of these things that have generally tightened the market for clean, firm power? Just curious if you still expect that the vast majority of OP projects will be kind of monetized via, you know, promote or a sale, or if there's an opportunity for you to operate them yourself.

Danny Rice (CEO)

Yeah, we talk about that all the time. It's like, do we get into the operator game? And I think kind of sitting here today, we don't necessarily think we need to internalize that skill set. Certainly, we're sitting in a unique position where there's probably nobody in the world that understands this technology better than us because we're developing it. Nobody really understands the operability of this plant better than us. And so it's certainly a skill set that we have a head start on everybody with. But I think it really comes back down to, like, what's going to enable us to be able to scale this thing as quickly as possible? Is that gonna be a responsibility that we can outsource to other folks?

I think as we look at origination, you know, our original goal was, look, you know, origination for us is gonna be a way to catalyze us into full-scale manufacturing mode. And I think it's just a reminder for everybody, you know, the goal was originally, look, let's build a shadow backlog of 30-40 NET Power projects that we kinda have teed up, you know, going through the requisite grid and subsurface permits for the first 30-40 plants by the time the first one comes online at the end of 2027. And then that'll really be the thing that catalyzes us into manufacturing mode and allows us to come down that CapEx curve.

You know, we can take our CapEx from $1 billion, $1.1 billion down towards that $700 million that we're targeting long-term. You know, we're kind of sitting here today, looking at just the interconnect queues, looking at this load growth that's coming, looking at the higher values that are now being ascribed to firm power. And it shows up in things like just the capacity markets, like what you saw in PJM. And so you're starting to see there's major scarcity and just new firm capacity being added. You know, it's really hard to contract just any type of firm capacity under a long-term PPA. But if you have clean firm capacity, that is highly valuable to a whole lot of potential strategic buyers on a long-term basis.

And so what that enables us to do is essentially underwrite a lot of the CapEx, if not the entirety of the CapEx, of these plants with these long-term PPAs, coupled with the benefit of the 45Q, which is essentially a 12-year fixed price PPA with inflation escalators in it. So it gets you to this really unique place where you can actually underwrite, like, the full returns of the plant on a fully contracted basis, and that's a really unique, really powerful place to be. And so I think when you couple just kind of those underwritten economics, along with just the magnitude of load that's gonna be coming to these grid systems, I think what it's really forcing us to do on the origination side is shifting to these larger scale developments.

Because, you know, while each of our modules at 250 MW, you know, 300 MW is fairly sizable, the load growth that's coming is, you know, in the magnitude of tens of gigawatts per year. And so for us, it really lends itself to these fleet deployments. And so that's one of the things that us and the team are really starting to think about, is fleet deployments, you know, 2-4 NET Power plants per pack. And so that's ultimately one of the ways that we're gonna be able to drive that CapEx down even further.

And so, you know, origination for us could transcend beyond just catalyzing us into manufacturing mode and really being a core staple of the business of NET Power, developing that expertise of being able to pair the power markets with the subsurface markets to create these really economic projects. So I think it's still an evolution in terms of where we ultimately end up, but I think everything that we're seeing on the macro side are certainly tailwinds that will just continue to support the efforts that we're putting into the origination bucket. And I think just the last thing on that is we just don't see a lot of new firm baseload showing up into these queues.

I think, you know, to Brian's point and to Thomas's question earlier, like, these supply chains are fairly constrained across the entire generation industry. You know, we, we've been seeing it over the last couple of years as we've had to push back the COD date of serial number one, and we're starting to see firsthand that it's not just us that's experiencing, it's everybody else in the market. And so, I think all to say, you know, as the market really starts to shift load growth because of capacity constraints, into the back half of this decade, the beginning of next, it really sets us up as we enter full-scale manufacturing mode to be able to capture when that demand's really gonna be there.

Thomas Meric (Director and Equity Research Analyst)

All very helpful. Thank you. I'll turn it back.

Operator (participant)

Thank you. Our next question has come from the line of Wade Suki with Capital One. Please proceed with your questions.

Wade Suki (Equity Research Analyst)

Good morning, everyone. Thank you all for taking my questions. I think last quarter, just to follow up, I believe on Leo's question earlier, I think last quarter you all mentioned that there might be another project that potentially sort of slots in ahead of this OP1 as we know it today. I mean, considering the MISO and Class VI filings, is that still possible or are we sort of at the point of more certainty? And then just in terms of timing, still fair to think of OP1 starting up within a couple of years of Project Permian?

Danny Rice (CEO)

Yeah. Hey, Wade. Yeah, the way we kinda think about it with origination and the reason why origination just gives us total flexibility is because these are our projects. And until we've brought in strategic partners on the equity side, on the debt side, on the offtake side, we kinda have, like, total flexibility around slotting order, around just sequencing of these plants. So certainly, like, OP1's kind of ahead of these other originated projects because we're already going through the permitting, we already have site control, all of those things for this to be an actionable project. But I think we've kind of always said, you know, we're going to try to develop the most economic projects first.

And so as we're kind of looking at opportunities in some of these other regions, there's definitely the opportunity that some of these other things could slot in ahead of it if the timing works out and if the permitting and everything falls into place. And I think one of those markets that could surprise people is probably gonna be the Alberta market. It's probably the most economic place in the world to develop a NET project, a NET Power project, principally because of the ITC credits you have at the federal level and at the provincial level within Alberta, a favorable carbon tax pricing regime.

And, you know, Alberta's been highly successful in being able to permanently sequester CO2 through a lot of, like, really nice geological formations over the course of the last few years. And so that's a really unique market where, you know, we're pretty advanced on a couple of things up there in Alberta right now, and that becomes one of those markets that could leapfrog what we're doing up in the MISO area. But I think at the end of the day, you know, what we're really thinking of is after this first plant comes online, you know, at the end of 2027, we're quickly ramping into full scale manufacturing mode.

You know, and the goal isn't to deploy just 1 or 2 plants per year, but it's to scale into being able to deploy dozens of these plants. So whether it's serial number 2 or serial number 3 or serial number 10, you know, the expectation is we'll be able to have that backlog of originated projects that we're starting to build that queue up right now. We'll have those deployed before the early part of next decade. So, we're really excited about being able to have just total optionality over which project we slotted serial number 2, serial number 3, serial number 4. But I think we're going to have probably another year, 18 months before we really need to put a fork in what plant is going to be serial number 2.

Wade Suki (Equity Research Analyst)

Fantastic. I appreciate that. Great, great detail. You kind of led into my second question on Alberta. Sounds like a very attractive market developing up there for you all. Any hints you can give us? I think I heard you say you have secured a partner already up there. Did I hear you correctly? And any color you can give on that would be, that'd be fantastic.

Danny Rice (CEO)

Yeah, no, we're working with a few firms up there that have really great access to natural gas, really great place to be able to store the CO2. You know, I think as we're seeing across most of these places, the power piece is probably the easiest one to solve, considering, like, just about every single power market is short firm clean capacity, and everybody's really scrambling to figure out ways to be able to procure that sort of generation capacity. So the power piece is probably the easiest of the variables to be able to solve for. The key things are really being able to figure out how am I going to get access to the lowest cost gas I can?

How can I get as close to the CO2 sink as possible to really minimize the CO2 transportation and sequestration costs? And so in Alberta, just like within any other place in the U.S. or really any other place in the world where this plants make—these plants make really good economic sense, you're typically going to be partnering with the oil and gas industry, especially on the gas procurement and the CO2 sequestration side. So, we're working with a couple of folks really close on opportunities up there. And certainly as those ones evolve and become announced, we'll definitely share with you guys more details.

But, all the same, you know, Alberta is a really interesting one for a lot of the same reasons why some of these markets in the U.S. are really exciting to us as well.

Wade Suki (Equity Research Analyst)

Great. That's, that's fantastic color. Thanks so much. Look forward to seeing you guys next month.

Danny Rice (CEO)

Thanks, Wade.

Operator (participant)

Thank you. Our next question has come from the line of Martin Malloy with Johnson Rice. Please proceed with your question.

Martin Malloy (Director of Equity Research and Partner)

Good morning. I was wondering if you could maybe give us an update on your approach to financing the Project Permian plant and, you know, any update as far as DOE potential funding, timeline, et cetera?

Akash Patel (CFO)

Yep. Hey, Marty. Thanks for the question. This is Akash. So, you know, we've said this on previous quarters, so we're waiting for... There's a lot of things that have to get aligned before you announce the final financing package for the first plant. We're going through FEED now, right on the end of FEED in Q4, we'll get an open book estimate. So we'll have the firm CapEx number, and that really will allow us to know the actual, you know, specific returns of the plant based on supply, offtake, et cetera, that we're currently in discussions with in West Texas. We are the first $200 million into the plant.

We've announced that, right, of our $600+ million in cash, we're going to be the first $200 into the plant. And then we're working on the financing strategy with our existing owner group, led by Oxy and Baker and Constellation, for how we approach the rest of the capital for that. We also have said that the first plant we're approaching this as fully equity funded at the project level. Now, if there's opportunities for us to get either federal or state level capital, we are evaluating that.

The DOE program for the LPO, I think we're more thinking about that as potentially a really good, strong opportunity for anything in serial number two plus, like in MISO. And then, you know, there's other things within Texas that we're also constantly evaluating, including the Texas Energy Fund. But as of now, we're assuming that it's fully equity funded.

Martin Malloy (Director of Equity Research and Partner)

Great. And for my follow-up question, I wanted to ask about brownfield site opportunities. Are you seeing any opportunities there to maybe accelerate originated projects?

Danny Rice (CEO)

Yeah, definitely. You know, I think greenfield, brownfield. So brownfield are just existing sites for the listeners that haven't heard that term before. And so I think, yeah, brownfield sites are really interesting to us for several reasons. One, they already have existing interconnects. And so really what you're doing is we'd really just be repowering those existing interconnects. I think if you look at just, like, the thermal power industry over the last, you know, 10, 15 years, you've seen capacity rates on a lot of these baseload plants go from them serving as baseload, 80%-90% capacity factors.

Now they're trending down towards 50%, 60% on average, and a lot of them are, have just been fully relegated to peakers, where they're operating 10%-20% of the time and really just serving as a backup to the grid, when they're needed. And so those are sites with interconnects that are highly underutilized, and so it becomes really unique opportunities for us. And so that's part of our screening assessment is, you know, for origination is, are there brownfield opportunities? And so, yeah, no, it's definitely in the works. They're definitely interesting. I would say, you know, if we were trying to get a NET Power plant on in the next two years, brownfield sites become really, really interesting to us.

But the fact that we're talking about projects in 2029, 2030 and beyond, the brownfield sites aren't as valuable to us as they might be to somebody that's trying to do something with it within the next year or two. But I would say, you know, when we look at just the size of generation that you can generate from our footprint, which is a lot, our plant is highly, highly dense. You know, we're talking about 15-20 acres for each of these blocks. And so if you're talking about 4 NET Power plants for 1 GW, you know, we only need 80 acres. And so just the siting requirements for us are much smaller than they are for any other real new thermal power plant today. And so we can fit into existing spaces.

And so as we look at just some of these brownfield sites, we don't think you'll necessarily need to take away the existing plant that's there. We can actually co-locate and essentially repower without having to get rid of the existing power plant. So it creates really unique opportunities, just given the dense footprint we have. And certainly just those brownfield sites become interesting opportunities for us. But again, it all gets back to because we're really trying to optimize for the lowest cost source of power we can. Being as close to the sink and as close to the natural gas are two of the more important features that really drive total project economics for the cost of electricity.

So those are the two driving things, and then certainly the being on a brownfield site is important, but I wouldn't say it's necessarily, you know, in the top three or four things that we're looking at as we screen for the best places to put these plants.

Wade Suki (Equity Research Analyst)

Thank you. Very helpful. I'll turn it back.

Operator (participant)

Thank you. Our next question has come from the line of Pavel Molchanov with Raymond James. Please proceed with your questions.

Pavel Molchanov (Equity Research Analyst)

Yeah, thanks for taking the question. Nice to be on your call for the first time. You touched on permitting in some of your remarks. You know, we've seen so many different infrastructure projects get delayed because of permitting over the last few years, you know, specifically in the U.S. And can you just talk about kinda how that aspect of the roadmap is going, and do you envision any delays on that front?

Danny Rice (CEO)

Yeah, Pavel, that's a great question. I think that's certainly one of the issues that I think the broader power industry has faced, is looking at building a new transmission, new infrastructure, to be able to connect their generating assets. I would say the one thing that's unique, probably more unique about NET Power... Well, there's a couple things. First, we don't take up a lot of land, and I think if you look at just the transmission issues that you're seeing, specifically on the wind and solar side, those folks need a lot of land to be able to build their generating facilities. You know, you're talking about thousands to tens of thousands of acres for each of those.

So they're having to build out in areas where they have enough land mass to be able to build their generating assets, which inevitably means, in most cases, they're having to build further from where the existing transmission lines are, and they're having to lay new transmission lines. Our situation is a little bit different, where we can find 20-100 acres close to existing transmission lines where there's not congestion on the system. I think that's certainly part of just our screening assessment as we look at where we wanna—where do we wanna set up shop within these territories, is really figuring out where is there not much congestion on the system that we can get into on the 100 acres or so.

That's certainly a screening thing that's really just afforded to our technology and not so to other forms of clean generation. So there's that piece. So I think that's probably, like, the biggest one, is we're really trying to be as close to the existing grid as possible, and I think just given our small footprint enables us to do that. So we're really, we're really able to mitigate a lot of just the transmission extensions that have to happen for renewable forms of power. And then the other just real permitting consideration is really on the subsurface side, on being able to permit the CO2 infrastructure, both the wells and the pipelines. And again, we're really targeting being as close to the sink and as close to the grid as possible.

In an ideal scenario, we're right next to the interconnect, the grid interconnect, and we're right on top of the sink. That's certainly what we're doing on our project up in MISO. That's what we're doing for our first project in West Texas. And that's kind of how we're looking at things in Alberta and some of these other places as we go through these feasibility studies, just figuring out how can we be as close to the sink and as close to the grid as possible. Because not only is it good to shorten permitting times, because we're not having to build massive new infrastructure that could take years and years and is outside of our control, but it also reduces our CapEx as well, especially on the CO2 transportation side.

The smaller that CO2 pipe is, the lower the CapEx is and the higher the project returns are. So, all to say, like, all of this goes into just the assessment that we do. And so, you know, we're mindful of the delays that we're seeing across the industry, and we're certainly being very, very thoughtful about siting projects in areas where we're not gonna see, you know, 5-7-year transmission line delays.

Pavel Molchanov (Equity Research Analyst)

Let me follow up on another aspect of sort of policy risk, so to speak. You know, 45Q obviously got some benefits from the Inflation Reduction Act and 90 days out from the election, you know, there is some debate over whether the IRA will survive in its current form if there is a second Trump administration. What's your thinking around that issue?

Danny Rice (CEO)

You know, there's only so many, so many things that we have control over, and who knows what any administration is gonna do. I would say if there's any single technology that can survive administrative changes, if the administrations do wanna change things, I think the one thing that could... that should survive is something like NET Power, and something like the 45Q for sequestration. Both because it helps us meet our energy needs, it helps us, it leverages the traditional oil and gas industry on being able to procure natural gas, being able to sequester the CO2. So that certainly satisfies one contingent. But then the other side is it helps us achieve our environmental goals as well.

And so there's not a lot of solutions, not a lot of technologies out there that kind of cut across the aisles the way NET Power can, where it really helps us achieve both our energy goals at, with affordable, reliable energy, while also at the same time helping us achieve our environmental goals. So I think if there's one single technology that could survive all of this, if there was gonna be change, it would be NET Power. And so I think that's ultimately what we can hang our hat on, sitting here today, knowing that we're not gonna be in the administration, we're not gonna have control over the decisions that are made. We just know we're designing something that satisfies both Republicans and Democrats alike.

I don't know if other folks have... Akash, Brian, if you guys have any thoughts on this matter.

Akash Patel (CFO)

Yeah. Yeah, Danny, I agree with everything Danny said, Pavel. And what I'll also add is the 45Q wasn't enacted under Obama. It was set to expire, I believe, in 2023, and the Trump administration actually extended it. And so there's precedent for them supporting the 45Q. And then when it was, when the price of it was increased from $50 per ton to $85 a ton in under the IRA, that was actually taken from the GOP bill. So as Danny said, this is something that has pretty strong bipartisan support.

Pavel Molchanov (Equity Research Analyst)

Thank you very much.

Danny Rice (CEO)

Thanks, Pavel.

Operator (participant)

Thank you. Our next question has come from the line of Noel Parks with Tuohy Brothers. Please proceed with your questions.

Noel Parks (Managing Director)

Hi, good morning. I just had a couple. You know, going back a little earlier in the call, I was a little surprised to hear you comment on, oil and gas companies and, and that where you're looking for sequestration partners, they're typically gonna be local, companies. Is there any interest being expressed out there for sequestration projects by, you know, legacy energy companies, but where they're investing outside their home base? Just wondering, maybe, like, they're investment minded, looking at the 45Q and, and just doing the math and thinking that, you know, they'll branch out.

Danny Rice (CEO)

Yeah, I mean, yes. No, no, that's a great question. I think, yeah, we've certainly seen a lot more companies being spun up in the energy space that are specifically focused on sequestration. But yes, in most of these territories, you have folks that already have just local geology expertise. And then you're seeing new teams being spun up or that have been around for a little bit of time, that have now started to expand beyond just their existing home base. You know, we've seen it from folks on the sequestration side. You've really seen it from folks coming with a deep EOR experience, enhanced oil recovery, where they're very familiar with understanding CO2 sequestration.

And so you've started to see those folks who have predominantly come from, you know, the Mid-Continent, you know, Oklahoma, parts of in obviously West Texas and the Permian, developing those EOR skill sets, and they're now able to start applying it to CO2 sequestration. Not necessarily just for enhanced oil recovery, but, but now for permanent geologic sequestration. And so, yeah, you're, you're starting to see those folks do a lot more, I would say, exploration, where they're starting to go into these other territories with their land team, starting to procure acreage positions, all of it really grounded in the geology of really understanding where are the areas where you have those really thick water-bearing sandstones that are really conducive to sequestration. So we're seeing those folks pop up, which are great.

You know, those folks are doing a lot of the exploration work to start to delineate and de-risk a lot of these formations. We're starting to see a lot more teams pop up in all parts of MISO, from northern MISO, all the way down to southern MISO. You're starting to see more folks start to focus on PJM, which is fantastic because... You know, we're sitting here today with PJM as the largest competitive power market in the U.S. It's where you're starting to see most of the load growth really constrained by new capacity additions. And so PJM becomes like a really, really interesting territory for us, the largest one, if we can really crack the code on sequestration.

And so starting to see a lot of these good geology-based teams getting out there in front of it on being able to delineate the sequestration resource is really important for companies like us, because we're not gonna employ the geologists per se, to go out there and delineate and explore for sequestration potential, but they will. And so you're starting to see, again, that oil and gas skill set is now being applied to sequestration, and you're starting to see more teams get stood up to do it. And I think that trend will just continue to play out. But certainly, like where we're starting today is you're starting with partnering with the folks that already have the existing expertise within these areas, but more importantly, the existing acreage that enables you to be able to begin sequestering sooner. I hope that helps.

Noel Parks (Managing Director)

Got you. Yeah, it totally does. Yes. I can picture some former people I knew who worked in EOR, this being just right up their alley. And you know, just thinking about utilities that you've talked with in the origination process, and I wonder, you know, they must run the spectrum between those that maybe were more aggressive with wind and solar, and as a result, are facing the impact of intermittency issues, you know, more front burner, and maybe those are kind of held back. So maybe they haven't really made a lot of investment in clean energy yet, but of course, they don't have those intermittency problems.

I just wonder, as you talk to those that have done different levels of investment in alternative generation, just wonder if there are any, any patterns you see in their thinking, their decision pace, et cetera?

Danny Rice (CEO)

No, I mean, I can't really give too much on the specifics around just their investment profile and risk profile and just their strategy around new energy. But I guess what I can say is everybody's deeply interested in seeing NET Power succeed, which is really, really encouraging because I think everybody kind of... Not everybody, but a lot of these utilities see a lot of these other things coming on the pike, and they're just so cost prohibitive versus where power prices are today and even where power prices are going, that we kinda have almost an entire industry sitting on the sidelines cheering for us, hoping that everything goes according to plan.

That's certainly why we're being so deliberate and rigorous with the Baker testing at La Porte ahead of the first plant coming online, is we need to ensure this thing works as designed, because the industry is really looking down the pipe of all potential solutions. I kind of covered it in, like, the prepared remarks, but there's really no other, like, real solution coming down the pipe that's gonna have any chance of being able to decarbonize and help us achieve these energy goals at, like, a tolerable price.

You know, new nuclear is really, really challenging for a few reasons, and it's not just the cost piece, but it's also just the time to be able to scale, you know, when the industry really needs it to meet their load growth. You know, I think everybody's now starting to look at batteries as just this, I call it a triage thing, where it's being able to help prevent prices spike to $400 or $500 or $600 per MWh. And so as people are starting to look at just what solutions are coming down the pipe, that's gonna enable us to be able to have clean power, but at a power price that's not much higher than where power prices are today.

You know, a gas-based solution like NET Power's is going to be the way to get there. And so, you know, really what we're doing with them in origination, because this is an entirely new type of power plant, right? This isn't a bolt-on technology to a combined cycle. This is an entirely new natural gas power plant. It's gonna be baby steps to bring them up to speed with NET Power. And so what we're really doing is, with origination, origination becomes a gateway for them to be able to get fully up to speed with NET Power. And so with origination, yes, we're gonna be bringing a lot of strategic utilities into these origination consortiums that we form.

And it allows them to have a front seat to seeing how do we go through FEED, through EPC, through commissioning, through operation of this plant, so that they can get super comfortable. They can develop that skill set internally to be able to operate a NET Power plant, and then they can say to us, "We, we understand how this plant works. This thing is great. Just sell us... We just want to buy 10 licenses to build these across our geographic footprint." So origination is both just a commercial catalyst for us on deploying into full-scale manufacturing mode, but it's also a gateway for a lot of these utilities to get very, very comfortable with how to build on and operate a NET Power plant before they have to do it 100% themselves.

Noel Parks (Managing Director)

Great. Thanks a lot.

Operator (participant)

Thank you. We have reached the end of our question-and-answer session. I'd now like to turn the call back over to Danny Rice for any closing comments.

Danny Rice (CEO)

Hey, thanks, everybody, for joining us today. It's, you know, it's becoming really clear to us that our value creation, it'll be determined less by our competitiveness versus the alternatives. You know, our clean power solution will inherently be lower cost and more reliable in the market today and versus those coming on the pike. And so we really see our success will be determined by our ability to prove our technology at utility scale. So thank you for your support in helping us make that happen. Have a good day.

Operator (participant)

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.