NuScale Power Stock for Investing in Nuclear Energy
Quite a few of our lovely readers are interested in investing in green technologies, particularly renewable energy stocks like solar, electric vehicles (EVs), battery storage, and more. Over the last 18 months or so, it’s become much easier to find these kinds of stocks thanks to the proliferation of special purpose acquisition companies (SPACs). These so-called SPACs are shell companies that raise hundreds of millions of dollars with the intent of merging with a startup or private company. Many SPACs target immature or niche technology sectors where most companies aren’t really ready for prime time, such as EVs. Not surprisingly, many SPAC stocks have crashed and burned retail investors.
But still they keep coming. One of the latest companies to announce its intention to merge with a SPAC is NuScale Power, an advanced nuclear technology company developing small modular reactors (SMRs). Nuclear power currently accounts for about 10% of the global electrical supply, according to the International Energy Agency. In the United States, the total is closer to 20%, according to the U.S. Energy Information Administration, about the same as all renewables combined.
Most experts agree that renewables alone can’t fully decarbonize the global economy. While nuclear has a bit of a PR problem, due to both perceived and real challenges, it is a low-carbon option that ESG types shouldn’t entirely dismiss. Our energy future will likely tap a mix of renewable and low-carbon sources that prove to be the most cost competitive. One way to figure that out is through calculating the levelized cost of energy (LCOE), which measures the “average net present cost of electricity generation for a generating plant over its lifetime.” We won’t pretend to understand all of the factors that go into making these estimates, but it offers a useful baseline comparison:
As you can see, nuclear power currently isn’t the cheapest or the most expensive. But the new generation of fission-reactor technologies promises not only to be safer and produce less nuclear waste, but to cost less to build, operate, and maintain. At least that’s one of the big selling points behind NuScale Power’s SMRs.
About NuScale Power Stock
Founded in 2007, Portland-based NuScale Power actually got its start more than 20 years ago at Oregon State University. That’s where Dr. Jose Reyes, co-founder and chief technology officer of NuScale Power, first started working on the concepts that would lead to a new type of small light-water nuclear reactor that could be deployed virtually anywhere. The company says it has received nearly $1.4 billion in funding, with the Department of Energy (DOE) providing lots of grant money ($500 million and counting) along the way. An early, key investor is Fluor Corporation (FLR), a $4 billion market cap engineering and construction firm that will retain about a 60% stake in the new company if the proposed merger with Spring Valley Acquisition Corp. (SV) goes through this year.
The deal would value NuScale Power at about $2.3 billion, based on post-money equity, which would include about $413 million from the deal with SV. That’s not bad considering that NuScale is projected to generate just $16 million in revenue this year. Before we pick apart the financial picture, let’s understand a bit more about what NuScale is developing and why it’s potentially a big deal.
Small Modular Reactors
The company is ready to begin commercialization of its NuScale Power Module, a 76-foot-tall SMR that can generate 77 megawatts of electricity. There’s no fancy metal or exotic fuel, yet the module eliminates the need for two-thirds of the safety systems and components found in today’s large commercial reactors. The reactors are designed to safely shut down in an emergency and indefinitely self-cool, with no need for operator or computer action, power, or the addition of water – reportedly a first for any commercial nuclear power plant. In fact, the containment module is nothing more than a four-inch-thick pressure vessel. For comparison, about 120 NuScale power modules could fit into the containment chamber of a large gigawatt-size reactor.
The U.S. Nuclear Regulatory Commission gave its stamp of approval to the technology in 2020. More recently, the company unveiled its VOYGR power plant design, which can accommodate configurations of four, six, and 12 modules. The largest can provide up to 924 megawatts per day of electricity – enough to power about 700,000 homes in the United States – at an estimated cost of $3.3 billion. A large-scale nuclear power plant can produce about twice as much power but at more than three times the price, and requiring an order of magnitude or more of real estate. The idea is that you can plop these things down just about anywhere, including the middle-of-nowhere Idaho.
Just One Customer
In fact, that’s exactly where the first commercial power plant using small modular reactors will be located. Utah Associated Municipal Power Systems (UAMPS) – a nonprofit utility of sorts that provides various power services to Utah, California, Idaho, Nevada, New Mexico, and Wyoming – is building a 462-megawatt plant in Idaho using six NuScale SMRs. The LCOE is estimated to be $58 per megawatt-hour – not bad, but not the best. The DOE is helping foot the bill with a 10-year, $1.4 billion award. The VOYGR plant should be operational by 2029, with a 60-year lifespan.
Just one customer. That’s the sum total of NuScale Power’s current business. Of course, there’s plenty in the pipeline, including talks about the first commercial SMR in Europe (via Romania) and 19 memoranda of understanding, which is little better than a pinky swear. The company earns money by selling its power modules (using a network of partners to procure and build the SMRs) and licensing its intellectual property and plant designs. There are also various kinds of recurring service revenues, like training and fueling, that begin years before a nuclear power plant is operational until the day it
melts down is decommissioned.
The company structures its contracts so that customers must pay for the services and materials that go into a NuScale power plant before they’re incurred, which seems wise given the billion-dollar price tags on these things.
Should You Buy NuScale Power Stock?
We won’t tell you what tie goes with that blazer, so we definitely wouldn’t offer advice on what stock you should own. Sure, it would be cool to own a piece of an advanced nuclear technology company. A lot of people thought the same thing about space companies. As Space.com recently reported: Of the nine space companies that went public through SPAC mergers in 2021, all but one finished 2021 with shares trading below the price of when the mergers closed. The lone “success” story was Rocket Lab (RKLB), which is also now trading below its original merger price.
We’re not here to argue against the potential energy market for NuScale’s technology. Dozens of coal plants and nuclear power plants will be retiring in the coming years, even as the world’s energy needs grow. The capability to deploy low-carbon nuclear energy using SMRs could be a real game changer, but it won’t happen overnight. It probably won’t even happen before the end of this decade, despite the current timetable in Idaho and handshakes for 19 other projects around the world.
NuScale estimates it will make $5 to $15 million per year in the first four years of any power plant project. The big money, between $200 and $250 million annually, comes in the next few years during fabrication of the reactor modules. But somehow it projects revenue of $145 million by next year? There’s a lot of back-of-the-napkin math that you’re not going to get with a shiny investor deck. It really makes zero sense to invest in NuScale Power stock before it shows it can execute with one single customer.
Unfortunately, Investment opportunities in nuclear energy are sparse, aside from the odd pick-and-shovel play, such as reactor component manufacturing or uranium mining, along with a few Chinese nuclear energy utilities. Those with a long, long, long time horizon and high-risk tolerance will find NuScale Power as an additional option, if the merger succeeds, under the ticker SMR sometime around mid-year.
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