Q1 2024 Summary
Published Feb 14, 2025, 5:31 PM UTC- Strong Demand from Data Centers and Grid Shortages: NET Power is experiencing significant interest from tech companies and data centers that require clean, affordable, and reliable baseload power. With grid operators like ERCOT projecting a 30-gigawatt shortfall by 2030, NET Power's technology is well-positioned to meet the growing demand for baseload power.
- Unique, Scalable Technology Recognized by EPA: NET Power's patented technology provides scalable, clean baseload power by eliminating emissions from natural gas generation through oxy-combustion. The EPA has recognized NET Power by name as a promising technology to meet future emission regulations, positioning the company favorably in the market.
- Ability to Serve Hyperscale Data Centers with Modular Design: NET Power's 250-300 MW plants are well-suited for the needs of hyperscale data centers, which can require up to one gigawatt of power. The company's modular design allows for fleet deployments, enabling it to meet large power demands efficiently and with significant power density advantages over renewable sources.
- Delayed Revenue Generation Until 2027-2028: NET Power's first utility-scale plant, Project Permian, is not expected to generate power until between the second half of 2027 and the first half of 2028. This suggests that significant revenue generation is still several years away, potentially impacting near-term financial performance.
- High Execution Risk and Capital Expenditure: The company's technology has not yet been proven at utility scale, presenting substantial execution risk. Additionally, the capital expenditure per plant is high, with a target of reducing costs to $700 million per plant by the 30th plant, which may strain financial resources and impact profitability. Scaling up production to meet demand may also present challenges.
- Dependence on Government Policies and Incentives: NET Power's business model relies heavily on government incentives like the 45Q tax credit and favorable EPA regulations. Any changes or uncertainties in these policies could adversely affect the company's economics and growth prospects. Furthermore, the lack of similar incentives in international markets may limit global expansion.
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Cash Burn and CapEx
Q: How will cash burn and CapEx progress in 2024?
A: Management reported cash burn from operations at roughly $2.7 million this quarter, including a $3.7 million payment under the Baker Hughes JDA. Excluding that and interest received, the annualized cash burn is about $40 million, which is materially covered by interest income. However, as interest rates decline and CapEx spending increases, cash burn is expected to accelerate. They overcapitalized the balance sheet with $200 million earmarked for initial project investments. -
Supply and Demand of Dispatchable Power
Q: How do you view the future supply and demand of dispatchable power?
A: Management highlighted underinvestment in baseload dispatchable assets and the challenge of meeting growing 24/7 load demand, especially with new EPA regulations. They believe natural gas generation, specifically NET Power's technology, is essential to scale up and meet this demand while complying with emissions goals. They aim to scale from one plant a year to 30 plants per year by the next decade. -
Impact of EPA Regulations
Q: How do EPA regulations affect NET Power?
A: The new EPA rules are seen as beneficial for NET Power. The company was specifically mentioned as a promising technology in the EPA's final document. Management believes their technology can unite the industry's desire for clean, affordable, reliable power, leveraging low-cost natural gas to deliver the "energy trifecta". -
Data Center Demand
Q: What's the opportunity with data center demand?
A: With hyperscale data centers requiring 250 MW to 1 GW of power, NET Power's standard 250–300 MW plants are an ideal fit. They can deploy fleets of plants to meet larger needs, offering high power density and the ability to co-locate with data centers. Management emphasized the critical need for reliable, affordable, clean power in the tech industry. -
Project Timelines and Scalability
Q: What are the expected timelines from customer agreement to plant startup?
A: For initial projects like Project Permian, the timeline is approximately four years end-to-end. With standardization and modular manufacturing, they aim to reduce this to three years or even shorter in the future. -
International Opportunities
Q: Where do international opportunities stand in your priorities?
A: International markets like Canada (Alberta), the Middle East, and Australia are interesting due to access to low-cost natural gas and CO₂ storage options. However, the U.S., with incentives like the 45Q tax credit, remains a primary focus. Global demand may exceed their capacity, creating scarcity value and prioritizing the most pressing markets. -
Technology Advantage and IP Position
Q: How does your technology compare to other decarbonization solutions?
A: NET Power's oxy-combustion technology simplifies carbon capture by eliminating nitrogen from combustion, making CO₂ capture more efficient. They hold patents on this process, uniquely positioning them to scale at utility levels. Other solutions like fuel cells and batteries may help around the edges but can't meet the scale of 24/7 baseload demand. -
Status of OP1 Project
Q: What's the status and size of the OP1 project?
A: OP1 is the same size as serial #1, utilizing their standard 250–300 MW plant design. The standardized approach allows for flexibility in deployment and the ability to adjust priorities based on market needs and shareholder interests. -
Air Separation Unit Integration
Q: What progress is there on integrating the air separation unit for Project Permian?
A: They are focused on technical integration of the air separation unit into the standard plant design, working to avoid technology risks by using proven design aspects. The ASU is integrated into the NET Power plant, and they are working through technical and commercial discussions. -
Customer Engagement for OP1
Q: Have you engaged a committed counterparty for OP1?
A: It's still to be determined if OP1 will be serial #2 or #3. They are leveraging flexibility in project origination to control timing and involve strategic stakeholders, envisioning markets that can accommodate 20 to 40 NET Power plants.