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    NET Power Inc (NPWR)

    Q2 2024 Summary

    Published Feb 14, 2025, 5:33 PM UTC
    Initial Price$11.55April 1, 2024
    Final Price$9.01July 1, 2024
    Price Change$-2.54
    % Change-21.99%

    What went well

    • NET Power is uniquely positioned to meet the growing demand for clean firm power, particularly from data centers with an insatiable appetite for such energy. By offering long-term fixed-price PPAs at healthy prices and maintaining flexibility in project commercialization, NET Power enhances its revenue potential. ,
    • The company's technology allows for projects with a small footprint close to existing transmission infrastructure and CO₂ sinks, reducing permitting risks, accelerating project timelines, and lowering capital expenditures. This gives NET Power a significant advantage over other clean energy solutions that require larger land areas and new transmission lines. ,
    • The favorable policy environment, including the 45Q tax credit for carbon sequestration, has strong bipartisan support and is likely to continue, benefiting NET Power's business model and reducing policy risk. The 45Q credit was enacted under Obama, extended under Trump, and increased from $50 to $85 per tonne under the IRA, reflecting its broad political backing.

    What went wrong

    • Long and uncertain project timelines: NET Power's first utility-scale plant is not expected to start up until the back half of 2027 and first half of 2028 , and subsequent projects are planned for 2029, 2030, and beyond. This means significant revenue generation and profitability are several years away, potentially impacting investor returns in the near to medium term.
    • Reliance on 45Q tax credit introduces policy risk: NET Power's project economics depend on the $85 per tonne 45Q tax credit for carbon sequestration. Changes in government policy or a shift in administration could reduce or eliminate this incentive, adversely affecting the viability and profitability of their projects.
    • Potential challenges in project financing: For the first plant, NET Power plans to invest $200 million of its own $600-plus million in cash but needs additional funding for the total project cost. The company is assuming the plant will be fully equity-funded, which could lead to dilution or a higher cost of capital.

    Q&A Summary

    1. Project Permian Timeline
      Q: Is Project Permian's schedule affected by Zachry's issues?
      A: Management stated that Zachry's financial issues have not impacted the Project Permian timeline. The Front-End Engineering Design (FEED) is progressing as scheduled with no changes to staffing or schedule. Forward-looking capabilities like contracting subcontractors and attracting staff for future phases are fully in place.

    2. Financing of Project Permian
      Q: Update on financing strategy and DOE funding?
      A: NET Power is awaiting alignment before announcing the final financing package for Project Permian. They are currently in FEED and expect a firm CapEx number in Q4. NET Power will invest the first $200 million into the plant and is working with existing owners like Oxy, Baker, and Constellation on financing the remainder. They plan to fully equity-fund the first plant and are evaluating federal or state-level capital. The DOE Loan Programs Office funding is being considered potentially for serial #2 in MISO.

    3. Monetizing Originated Projects
      Q: Any change in strategy for monetizing projects?
      A: Management is considering operating originated projects themselves but currently doesn't think they need to internalize that skill set. Origination serves to catalyze full-scale manufacturing mode. With rising load growth and higher values for firm power, they are shifting towards larger-scale developments and fleet deployments of 2 to 4 NET Power plants per pack, which will help drive CapEx down. Origination could become a core staple of NET Power's business.

    4. Alberta Projects Potential
      Q: Could Alberta projects leapfrog OP1?
      A: There is potential for projects in Alberta to move ahead of OP1. Alberta is considered the most economic place globally to develop a NET Power project due to federal and provincial ITC credits, a favorable carbon tax regime, and existing geological formations suitable for CO₂ sequestration. They are working with firms in Alberta that have access to natural gas and CO₂ storage sites.

    5. OP1 Project Status
      Q: Progress on OP1's partners and commercialization?
      A: For OP1, NET Power has lined up a sequestration partner with deep experience in local geology and regulatory processes. On the power side, they have flexibility in commercializing the power, with options including utilities, infrastructure capital, or data centers seeking clean firm power. They have numerous options to underwrite the plant with long-term fixed-price PPAs at healthy prices.

    6. Turbine Supply Chain
      Q: Is turbine supply secure amid global demand?
      A: Baker Hughes is experiencing pressure from the aviation industry's demand for jet engines, impacting the supply chain for forgings and castings. However, power generation is a smaller percentage of the supply chain. NET Power has a commercial partnership with Baker Hughes, focusing on long-term forecasting and ensuring they are not sole-sourcing suppliers. Management is confident in Baker's ability to secure the necessary components.

    7. Permitting and Delays
      Q: Any permitting delays expected?
      A: Management is mindful of industry delays but believes they can mitigate permitting issues. NET Power plants have a small footprint (15 to 20 acres) and aim to be close to existing transmission lines and CO₂ sinks, reducing the need for new infrastructure. They are being thoughtful in project siting to avoid delays associated with building new transmission lines.

    8. Policy Risk on 45Q Tax Credit
      Q: Concerns about 45Q changes under new administration?
      A: Management acknowledges limited control over policy changes but believes NET Power and the 45Q sequestration credit have strong bipartisan support due to benefits for both energy needs and environmental goals. The 45Q credit was enacted under Obama, extended under Trump, and increased under the IRA with GOP input. They expect it to remain in place regardless of administration changes.

    9. Brownfield Site Opportunities
      Q: Are brownfield sites accelerating projects?
      A: Brownfield sites are interesting due to existing interconnects and the ability to repower them. NET Power's small footprint allows co-location without removing existing plants. However, since their projects are targeting COD dates in '29, 2030, and beyond, brownfield sites are less valuable compared to immediate projects. They remain an interesting option but not a top priority.

    10. Sequestration Partnerships
      Q: Are oil and gas companies expanding in sequestration?
      A: NET Power is seeing more energy companies focusing on sequestration, including traditional oil and gas firms expanding beyond their home bases. Teams with enhanced oil recovery expertise are applying their skills to permanent geologic sequestration. This trend is beneficial as it helps delineate and de-risk formations suitable for CO₂ storage, which is valuable for NET Power's projects.

    11. Utility Partnerships
      Q: How are utilities responding to NET Power?
      A: Utilities are deeply interested in NET Power's technology as they seek solutions for clean, reliable, and affordable energy. NET Power provides a unique solution that can achieve both energy and environmental goals at tolerable prices. The origination process serves as a gateway for utilities to get comfortable with the technology, potentially leading to future partnerships or purchases of licenses to build plants themselves.

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