NuScale Power: The Only Approved Nuclear SMR In The USA
A review of NuScale Power's fundamentals.
Transcript
NuScale Power ($SMR) has a market cap of $2.4 billion and is a developer of nuclear small modular reactors.
In fact, this company is the only SMR developer that has an approved SMR design in the United States, so far.
In this video, we’ll go over the fundamentals of the stock and what issues I think they’re going to face down the road.
NuScale’s reactor design is the light water reactor (LWR), so it’s not very different in that aspect in comparison to most of the existing nuclear power plants out there, it’s primarily just a smaller version. 80% of the nuclear reactors operated around the world are LWRs.
Given its smaller size at 77 megawatts, and modular design, it allows for a faster, although still long build out time of approximately five years. The design allows for up to 12 modules, which would provide around a gigawatt of power if at full capacity.
Right now only the initial 50 megawatt design has been approved by the US Nuclear Regulatory Commission, but they’re undergoing a technical review of NuScale’s second design which will be for the 77 megawatt uprated version.
Again, this is the only approved SMR design in the United States, that’s the main advantage this company has over its competition in the sector.
NuScale simplified the design, reducing the need for reactor coolant pumps, large bore piping, among other systems in conventional nuclear reactors. This simplified design also increases the safety of the reactor.
Their technology has several key advantages over other reactor technology:
It has an unlimited coping period, meaning that human intervention isn’t necessary to prevent damage to the reactor core if AC power is lost
The NRC approved a far smaller special emergency planning zone for NuScale, instead of the 10-mile radius a traditional reactor needs. This allows NuScale to build reactors in a larger number of potential locations since it can be closer to other infrastructure.
The supply chain needed to build out their reactors is already in place since it’s a similar design to most existing nuclear power plants.
Given all of these advantages, it’s likely that if any company manages to build an SMR outside of China, Russia or Argentina… NuScale Power will probably be the first.
So, they have that public company, first mover advantage in their favor.
SMRs can be used for a variety of opportunities like replacing coal plants, data centers, hydrogen production, and water desalination.
And the majority of NuScale’s future revenues will come from the sale of the NuScale Power Modules (NPMs) to interested parties. Afterwards, NuScale will also provide services over the life of the plant like technical support, fuel supply services, and other recurring revenue options.
The customer will construct, operate, and maintain any plant, but NuScale will sell them the major equipment and receive revenue from providing a technology license.
To help build out these facilities, NuScale has their majority shareholder and major investor, Fluor. Fluor is an engineering firm that owns a 51% majority stake in NuScale, they will be providing EPC services for NuScale’s customers, helping to build and design the plants.
Other investors and supply chain partners include Doosan Enerbility, Sargent & Lundy, Sarens Nuclear & Industrial Services, JGC Holdings, IHI Holdings, GS Energy, and Samsung C&T. Many of these companies are involved in the energy, engineering, or nuclear industries.
JGC and IHI bought a 8-9% stake in the company from Fluor back in 2022 as the company was emerging in public markets. It’s worth noting Fluor has announced their intentions to scale back their ownership of NuScale down to 20-25%, but they still own 51% for now. It’s unclear whether they still want to decrease their ownership even further.
NuScale’s first project was set to be the UAMPS project with the Utah Associated Municipal Power System. This project was announced in 2015, with the goal to fully complete the project by 2023.
Well, that didn’t happen. Why?
Because the costs of the project continued to rise… from an initial estimate of $3 billion all the way to $9.3 billion in 2023. They tripled the expected costs of the project, and scaled down the size of the project from 600 MW to 462 MW as well.
While SMRs are called small modular reactors, this is still a reasonably large sized power plant, so cost overruns are to be expected in a project of this size. Especially when building out a novel technology.
But it’s what we see all the time with these types of companies, and it’s why I like to stay away from them.
At this point, the next project that has been progressing is an effort to redesign the site of a former coal power plant in Romania to use NuScale’s nuclear technology with RoPower. That is a subsidiary of the partially state-owned Romanian nuclear energy company, Nuclearelectrica.
This is going to be a six-reactor SMR that will produce 462 MW of power. As of July, Fluor has been awarded a Phase 2 FEED study to work on engineering and design of the facility. And the hope here is that this project could be built by 2029, but chances are it’ll be even later than that.
There are a few other projects in the pipeline, with over 100 active customer engagements… A few memorandums of understanding, but RoPower is really the main project right now.
NuScale has provided a general timeline of around 5 years to the commercial operation date of a plant. Over that time, and after the plant is built out, NuScale will receive revenue through royalties and other services. But they will need significant funding to get these plants built, either through partners or otherwise.
The US government has been helpful on this front. Whether that be through providing $900 million to early movers in the development of SMR technology…
And the Inflation Reduction Act, which provides tax credits for nuclear producers, among other funding possibilities.
In 2023, it was announced that the Biden administration would be providing up to $275 million in funding to advance NuScale’s project with RoPower in Romania.
This was in addition to potential funding support from the U.S. Export-Import Bank and the U.S. International Development Finance Corporation. Combined, those two institutions could potentially provide up to $4 billion.
It’ll be interesting to see what the effects of Donald Trump winning in the recent presidential election will mean for funding efforts from the IRA, among other legislation. Trump has been relatively pro-nuclear, so the industry should be fine either way.
Also interesting, FERC voted 2-1 against a proposal for an Amazon data center to source power from a nearby nuclear power plant operated by Talen Energy
The government ruled that the parties didn’t adequately provide reasoning behind why the contract should be issued.
This result doesn’t necessarily rule out that data centers can source power from these nuclear power plants, they just need to bring additional scrutiny when looking at these deals. If too many data centers are established in these areas then power reliability can become a problem. The uncertainty here did cause nuclear stocks to drop when this news came to light.
As nuclear power is seen as one of the best solutions to the growing demand for energy from the tech industry, we will have to watch how the U.S. government rules in cases like this in the future. If the government moves against them then this could be quite a blow to the nuclear industry.
Going back to the company’s fundamentals… the management team and workforce at large seems highly qualified. The CEO, John Hopkins, has been working at NuScale since 2012, and he previously worked at Fluor for two decades, their engineering partner.
NuScale’s CTO, Jose Reyes, has a Ph.D and co-founded NuScale where he was a part of designing their reactor technology since 2007.
Their COO, Carl Fisher, began his career at the United States Naval Nuclear Propulsion Program, then worked at Framatome for 20 years, among other experience.
I could keep going, but you get the gist. This team seems highly qualified from an initial glance.
In terms of their overall workforce, the company has around 400 full-time employees, 156 of them have masters degrees, and 20 have Ph.Ds in relevant fields.
As of November 4th, 2024, NuScale has 101 million Class A shares, which are publicly traded, and 154 million Class B shares. Those Class B shares are held by NuScale legacy holders from before the company went public.
If you include outstanding stock options, warrants, and RSUs as of September 30th, 2024, then NuScale’s total potential diluted share count would be around 286 million shares.
Insiders are estimated to hold around 11% of the stock, we always love to see some insider ownership as well.
As of September 30th, NuScale had $111 million in cash, $180 million in total current assets. In addition to $80 million in current liabilities. So the cash crunch is already starting for NuScale.
This is before even accounting for the fact that the company burned $41 million last quarter. They’ve brought costs down, but it’s still a significant burn rate for a company looking to build its first reactor in 2029.
This is why NuScale recently filed a 424B5, which is an addition to the company’s prospectus, outlining how NuScale has established a $200 million ATM offering. So, the company is gearing up to start diluting. Which had already started under a previous ATM agreement.
As far as I know, NuScale hasn’t provided any projections for the economics of one of their projects. If they did, then it was probably made a long time ago. So, it’s difficult to say what the company might be worth, even when they finish building their first power plant.
At this point, NuScale is valued at $2.4 billion. All that I really have to go off of is that the company has sunk $1.8 billion into developing the technology and getting it approved. Now, that IP certainly has value, but that’s really the only backstop the valuation has.
We don’t know what it’s actually worth, but the market cap of the company is already above the replacement value of the intellectual property, you could say.
I think this stock is insanely risky, especially at this price. Congratulations if you’re an investor and caught the tailwinds of the AI craze, but I think beyond the hype… the future of this company is questionable at best.
They’re low on funding, already forming another ATM offering… even with more government support there is going to be significant dilution here. Now, that dilution isn’t as bad right now thanks to the stock running up recently. But there is certainly no guarantee the stock stays at this price.
Being five years away from finishing their first project, if not longer is uninvestable, in my opinion. That is far too long of a timeline for a public company.
And the failure of the UAMPS project tells us that they might never get one of these SMRs built. If they do, then it’s likely to cost many billions of dollars beyond what governments are willing to provide in aid.
So, I like nuclear. I wish I found a good way to invest in the industry. But I just don’t think these SMR companies are a good way to play this trend. Their success is not guaranteed by any means.