Earnings call transcript: NET Power Q4 2024 EPS miss triggers stock plunge

Net Power Inc. (NPWR) reported its earnings for the fourth quarter of 2024, revealing a significant shortfall in expected earnings per share (EPS). The company’s actual EPS of -0.67 fell well below the forecasted -0.12, resulting in a 54.69% drop in its stock price. The market’s reaction highlights investor concerns over the company’s financial performance and future prospects. InvestingPro data shows two analysts have recently revised their earnings downwards for the upcoming period, suggesting continued near-term pressure on the company’s performance. Subscribers can access 11 additional exclusive ProTips for deeper insights into NPWR’s outlook.

Key Takeaways

• Net Power’s EPS missed expectations by a wide margin.
• The stock price plummeted by 54.69% following the earnings announcement.
• The company ended 2024 with a strong cash position of $533 million.
• Operational updates include completed engineering projects and a new platform initiative.
• The energy sector faces rising costs and supply chain challenges.

Company Performance

Net Power’s overall performance in the fourth quarter of 2024 was marked by a substantial earnings miss, leading to a sharp decline in its stock price. Despite strong cash reserves and ongoing project developments, the company faces significant financial challenges. According to InvestingPro analysis, NPWR maintains a healthy financial position with a current ratio of 20.96 and more cash than debt on its balance sheet. Industry trends such as rising costs for combined cycle gas turbines and tight global energy supply chains are impacting the company’s competitive position, though the company’s low beta of 0.07 suggests limited correlation with broader market movements.

Financial Highlights

• Revenue: $250,000 (forecast not provided)
• Earnings per share: -0.67 (forecast: -0.12)
• Cash position at year-end 2024: $533 million
• Operating cash outflows: $32 million
• Capital expenditures: $70 million

Earnings vs. Forecast

Net Power’s actual EPS of -0.67 was significantly below the forecast of -0.12, resulting in a negative surprise percentage. This marks a substantial deviation from expectations and raises concerns about the company’s financial health and execution capabilities.

Market Reaction

The stock price of Net Power dropped by 54.69% following the earnings announcement, reflecting a strong negative sentiment among investors. The stock is now trading closer to its 52-week low, indicating heightened market concerns about the company’s future performance and strategic direction. Based on InvestingPro’s Fair Value analysis, NPWR appears undervalued at current levels. For investors interested in undervalued opportunities, check out the Most Undervalued Stocks list for more potential investments.

Outlook & Guidance

Looking ahead, Net Power is targeting the groundbreaking of Project Permian in 2027, with an in-service date in 2029. The company aims to reduce total installed costs to $1.7 billion and is exploring strategic partnerships and capital solutions to support its growth initiatives. Despite the current challenges, Net Power remains focused on its long-term vision of providing low-cost clean energy solutions.

Executive Commentary

CEO Danny Rice commented, "We’re caught in the middle of this frenzy," highlighting the challenges faced by the energy sector. He emphasized the need for solutions that balance load growth with decarbonization, stating, "The world needs solutions that balance load growth with decarbonization."

Risks and Challenges

• High operating cash outflows and capital expenditures could strain financial resources.
• Rising costs for combined cycle gas turbines may impact project economics.
• Tight global energy supply chains pose operational challenges.
• Competitive pressures from alternative technologies like nuclear and carbon capture.
• Regulatory and environmental considerations in project execution.

Q&A

During the earnings call, analysts raised questions about capital expenditure challenges across thermal technologies. Discussions also focused on potential funding sources, including project-level capital, government support, and commercial partnerships. The company highlighted interest from big tech companies and opportunities in California and Alberta.

Full transcript - NET Power Inc (NPWR) Q4 2024:

Conference Operator: Greetings and welcome to the Netpower Inc. Fourth Quarter twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Bryce Mendez, Director of Investor Relations.

Bryce, please go ahead.

Bryce Mendez, Director of Investor Relations, NetPower: Good morning, and welcome to NetPower’s fourth quarter twenty twenty four 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 fourth quarter of twenty twenty four, 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’ll now pass it over to Danny Rice, NetPower’s Chief Executive Officer.

Danny Rice, Chief Executive Officer, NetPower: Thank you, Bryce, and good morning, everyone. I’d like to start by saying 2024 was a year of significant progress for NetPower even amidst the challenging market conditions we faced while commercializing our technology. We completed the front end engineering and design or FEED for Project Permian, which we refer to as SN1, marking a major milestone for the world’s first utility scale fully integrated clean gas power plant of its kind. We also kicked off the first phase of our equipment validation program with Baker Hughes at our La Porte demonstration facility, achieving successful ignition on demand and accumulating over 140 to date. As many of you know, the energy sector has been grappling with unprecedented demand for reliable generation capacity, driven by more than a decade of underinvestment in power infrastructure and baseload generation, which is now compounded by rapid load growth, especially from AI and data centers.

This unprecedented demand response for new base load generation, which NetPower is developing, has led to significant inflationary pressures across the sector. Completing the feed gave us a detailed indicative estimate, including a buildup of material quantities and labor costs, but it also revealed areas where we can meaningfully reduce costs at our first deployment. I’d characterize this as fairly standard in bringing a new technology to market. As a result, we’ve shifted our focus to a post feed optimization and value engineering exercise to strip costs from SN1 and our standard plant design with minimal impact to performance, bringing us closer to delivering the lowest cost form of clean firm power that’s scalable. Before I dive deeper into our strategic pivot and outlook, I’d like to frame the broader macro context we’re operating in.

The surge in load growth, particularly from AI, just further underscores the value of reliable energy. We believe NetPower can be the most logical solution to deliver clean, reliable and affordable energy. Over the last four to eight years, the macro pendulum was swinging far in the direction of prioritizing and incentivizing clean generation capacity with little consideration towards overall power prices or grid reliability. But now the incoming load growth has quickly swung that pendulum in the opposite direction, driving a singular focus on adding reliable affordable power as quickly as possible. We’re caught in the middle of this frenzy.

Our plant’s expected costs are impacted by the same tightness everyone in the power sector is seeing, especially those developing new baseload thermal generation solutions, which makes it a little bit tougher for us to negotiate when we’re competing with companies ordering much more than we are. But we remain focused on proving our technology and positioning to be the lowest cost source of clean firm power in the coming decade. With over $530,000,000 in liquidity at year end, we’re in a strong position to advance our technology, optimize our plant designs and attract the right strategic partners to unlock this technology’s potential. I’ll now walk through our key milestones from 2024 and our priorities for 2025 before handing it over to Brian for operational updates and Akash for the financials. Starting with Project Permian, completing the FEED was a major undertaking between us and our FEED partner, the Zaffrey Group.

As far as we know, this was the largest ever FEED completed in the last few years for a clean gas power plant. In some ways, the FEED was a significant de risking event for the company as it identified no fatal flaws in the technology or plant design and as a plant we can go build today absent the cost, economic and fundraising constraints I’ll now touch on. On the cost side, the indicative estimate highlighted the market challenges we face as our technology isn’t immune to the inflationary pressures impacting the entire sector as I just mentioned. For reference, when we went public in 2023, our preliminary CapEx estimate for SN1 was $950,000,000 In the years that followed, we’ve revised that forecast upwards of $1,100,000,000 and then higher to better reflect the rising costs around us. And now based on the completed feed and where we think we’ll land with the value engineering work we started this quarter, we’re estimating total installed costs will be $1,700,000,000 to $2,000,000,000 This represents an approximately 100% increase in our total installed cost estimate with the inflationary pressure being a large factor along with the site and project specific items I’ll touch on later.

This increase is in line with the cost increases being seen by unabated gas projects. For reference, combined cycle gas turbines or CCGTs had estimated cost of around $1,100 per kilowatt just a few years ago. That figure rose to $1,500 per kilowatt last year and now we’re seeing new combined cycle projects priced north of $2,200 per kilowatt. If and when the global supply chain catches up to this demand, we’d expect to see meaningful cost deflation above and beyond the cost savings we hope to achieve through value engineering and our multi plant initiatives. Part and parcel with the cost inflation is just the tightness in the global energy supply chain.

Anybody looking to order a CCGT is likely looking at 2,030 for base case deliveries. And I think we’ve done a commendable job lining up the supply chain to deliver our plants on a timeline that’s competitive with other gas solutions. With Project Permian FEED, we also learned that a significant amount of costs are unique to West Texas in the first of a kind nature of SN1. Brian will go into more detail on our value engineering, but I’ll just add that the Permian has great features that make it an ideal place to put a first of a kind facility, including access to low cost natural gas and well established CO2 sinks. But unfortunately, the inherent higher cost to build in West Texas challenges plant economics and ultimately hinders our ability to get the project financed today.

With this backdrop, our focus is now on plant cost reductions. For 2025, we’re focused on three things. First, we’ll continue the value engineering exercise to further reduce costs for Project Permian. Second, we’ll complete the feasibility studies we kicked off earlier this year for multi unit projects along the Gulf Coast, which we believe will demonstrate further cost reductions. And third, with a lower cost project Permian and a line of sight to material cost reductions from Gulf Coast megaprojects, we’ll seek to raise capital and form projects to commercialize the technology.

Now the ultimate goal here is to be the lowest cost form of clean firm power at a reasonable premium to carbon emitting alternatives. So quickly touching on our competitive positioning versus the alternative forms of clean firm power that can be deployed. First there’s post combustion carbon capture or PCC. PCC increases the development operational complexity of a combined cycle and the costs are not well established because it hasn’t yet been successfully deployed at scale, particularly for CCGTs where there is a low concentration of CO2 in the flue gas stream. And with commercial demand here today to build new unabated combined cycles, developers aren’t required to install PCC in order to secure long term PPAs to help underwrite project funding.

Interestingly, PCC reduces the amount of net electric output from combined cycles. So in a load growth scenario like we’re in now, installing PCC is counterproductive to the grid’s primary needs. Nuclear is the other scalable clean from power generation option. And while it looks promising on paper, we don’t believe it’s a credible deployment option for the next ten years. Bottoms up estimates suggest new nuclear projects carrying LCOE of over $200 per megawatt hour today and first deployments are ten years away.

We consider ourselves energy altruists and we want to see all forms of clean, reliable, affordable power succeed, but we’re also energy realists too and it’s hard to see nuclear as a viable option for at least the next decade. Now that doesn’t mean The U. S. And others shouldn’t invest in advancing nuclear technology, but we think there’s a big difference between deploying now, which is impossible and advancing the technology through 02/1935 and deploying a decade from then. Nuclear has time to mature thankfully due to the availability today of firm technologies like combined cycles and clean firm solutions available much sooner like ours.

So as we think about our timing, operationally we’ll be ready to go this decade if we can get costs down and create a viable pathway to economic commercialization. This cause is frustrating but necessary and yet we think we’re still years ahead of competing technologies. So in a way we have the benefit of time to ensure we get it right before embarking on a pathway that will require billions of dollars from strategic commercial partners for project level funding to reach our desired end state as the lowest cost form of clean farm power. In addition to the value engineering and multi unit pre seed exercise, our related area of focus this year is securing sites along the Gulf Coast for modular multi unit deployments of up to one gigawatt each. These sites can also co locate with large load data centers or industrial users.

However, which of these projects should become slotted for SN2 or SN3 will ultimately depend on securing strategic capital partners. Beyond SN1, we’ve begun evaluating other creative ways to commercialize this technology and unlock its embedded value. For example, Bakerfuse and Woodside have kicked off the industrial scale program to target industrial applications looking for clean, reliable power. This smaller scale power plant would be a true licensing opportunity for Net Power with limited capital required from us. So with that, I’ll hand it over to Brian for operational updates.

Brian Allen, President and Chief Operating Officer, NetPower: Thanks, Danny. On Project Permian, as Danny mentioned, we completed the FEED in the fourth quarter, a major milestone for our team. The resulting project total installed cost estimate was higher than expected. I will provide a little more detail on what we have learned and what we will do next. The fees provided us crucial design information and an indicative cost estimate and schedule that reflect today’s market realities.

The engineering work that has been completed has identified and solved many of the technical issues that emerge as you apply a technology like ours for a first time to a project specific site application. This is a notable de risking event for us and as we have worked through and identified no fatal technical flaws to date in the balance of plant when deploying our technology at full scale to a site like Project Permian. The engineering deliverables also form a really solid basis for us to develop our standard plant design, which I will speak about later. Regarding techno economics, our engineering team has been optimizing our process design and making trade off decisions based on our most recent pre feed using our best judgment on how to account for cost escalation. By working through this feed process, we now have up to date indicative costs, including equipment pricing, bulk material costs, craft labor installation rates and transportation costs.

This is a large industrial project, and we have now matured the design to be able to directly quantify the site specific costs for Permian. There are many great attributes to Project Permian, including the de risking afforded by utilizing Oxy’s existing CO2 infrastructure, the access to skilled craft labor, the regional need for clean baseload power and a supportive local community. Like any site though, there are also areas that can drive cost challenges. The natural gas in this part of the country has four to five times the nitrogen content of other basins in North America, which requires purification equipment, which adds CapEx and adds to the parasitic load of the plant, reducing efficiency. Another challenge is the inland site location.

Large equipment shipments into the major ports in Texas will encounter several hundred bridges and a couple hundred transmission lines along the route to get to this site. This can be dealt with, but it does lead to overall weight and size restrictions we need to meet. Therefore, we have to break up our equipment, skids and modules into smaller transportation loads by rail or truck. When coupling that reality with our desire for the fastest feasible project schedule, it really forced the design into what the EPC industry would call a stick built design, which limits the ability to modularize and drives up the craft labor hours at the job site. Other challenges to the site include the cooling water availability and water quality, driving a very expensive water treatment plant design that has had an impact to our cooling system material selection and cost.

We now have this design and cost information and it informs us on what to do next. We have started a two pronged approach. One is related to next steps on Project Permian and the other is related to our standard product for deployment on future projects. For Project Permian, we have now shifted into a post feed optimization and value engineering process with Zachary, expected to finalize and result in a firm price this year. In the past two months, we and Zachary have identified hundreds of opportunities to value engineer the design and to date have already reduced the site footprint by approximately 25%.

Our goal remains to get total installed cost as close to $1,700,000,000 as possible or below without compromising performance or validation of the technology. We will focus on areas like techno economic trade offs, tropical module designs for the pipe racks, reducing design allowances and contingencies and making site specific SCOTA adjustments. We are also beginning to get a better view on the site specific performance impacts and now have better information to optimize cost and performance similar to the approach taken with other power plants. Given this ongoing value engineering, we felt it was prudent to stop any further long lead equipment releases and ensure that we have maximum flexibility to reduce costs and not block ourselves from making changes to equipment specs. The schedule therefore needs to adjust.

Assuming we secure the necessary capital for Project Permian after finalizing the firm project costs, the project timeline likely pushes to a best case of groundbreaking in 2027 with an in service date in 2029. On the next slide, I would like to shift gears to our standard product approach. We have always viewed that the best way for us to achieve our cost targets, that ability to scale, was to take a product driven approach encompassing a set of standard plant designs with pre engineered standard options. This is similar to the approach taken by power generation turbine OEMs. Permian has helped inform what our single unit inland standard design should look like once we pare back some of its site specific features and adjust the design for truckable modules.

Targeting the most competitive product we can develop, we have launched a large modular multi unit feasibility study to develop a standardized design targeting coastal locations that enhances scalability and reduces cost. This complements our broader cost down exercise for both SN1 and future deployments with the goal of our Generation one achieving the most competitive clean baseload power cost in

Danny Rice, Chief Executive Officer, NetPower: the

Brian Allen, President and Chief Operating Officer, NetPower: market. As part of this design effort, we’re also evaluating coastal site locations for projects in the 02/1930 to 02/1933 timeframe, which could benefit from modularization and eliminate costly inland transportation challenges and the large construction labor man hours for stick built sites. We are also looking to drive up the size of our standard product, no different than the economies of scale achieved today by CCGTs that have scaled up to 600 megawatts and up. On the next slide, I will address our La Porte demonstration facility, where we commenced the first phase of our equipment validation program with Baker Hughes in the fourth quarter. In order to begin the burner testing, we first had to upgrade and recommission the plant after having been idled since the 2021 testing campaign.

Our team along with Constellation and a dedicated group of skilled contractors performed over one hundred and fifty thousand hours of construction work to upgrade and improve the plant to meet the test requirements. I’m really proud of the team and our contractors for safely performing this construction work with no recordable injuries. As we commissioned the plant, we worked through typical shakeout issues as we operated a facility that had been idle for a few years. After working through those teething pains, we brought the facility up in pressure and temperature. I’m proud to say the facility has now achieved an operating window of higher pressure and temperature combinations than those achieved in the 2021 test campaign.

Regarding the burner testing, Baker Hughes has achieved burner ignition such that the facility is often operated in what we would call fired operation, where heat is being put into the CO2 working fluid by the burner and recirculated throughout the entire plant. To date, the facility has accumulated over one hundred and forty fired hours of operation during Phase one and had a continuous run of over twenty four hours. Turning to the next slide, we will continue to work with Baker as they test multiple burner configurations and collect the data they require to move to Phase two later this year. In Phase two, they will begin testing selected combustor cans for final down selection, after which they will manufacture multiple combustor cans to support the Phase four demonstrator turbo expander testing. This four phase testing program is scheduled to be completed in 2027.

Each phase builds on the last, giving us critical data to refine our utility scale designs and ensure reliability as we scale. Finally, I’m excited about the collaboration framework announced by Baker Hughes and Woodside Energy to develop an industrial scale net power solution for smaller applications like oil and gas, LNG, heavy industries and small scale data centers. This program will benefit from our ongoing validation efforts at La Porte and the development of SN1 and our standard products, while opening up new licensing opportunities with minimal capital outlay from NetPower. We stand ready to support Baker, Woodside and other future program participants with the NetPower process IP we have developed in order to ensure a competitive and successful program. This program is a great complement to our utility scale efforts and broadens the potential applications of our technology.

With that, I’ll turn it over to Akash for the financial update.

Akash Patel, Chief Financial Officer, NetPower: Thank you, Brian, and good morning to everyone. Let’s start with our liquidity position, which remains a key strength for NetPower. We closed 2024 with $533,000,000 in cash, cash equivalents and investments, down from approximately $580,000,000 at the end of Q3. This decrease reflects approximately $13,000,000 in operating cash outflows and approximately $29,000,000 in capital expenditures, primarily tied to La Porte upgrades and SN1 development. For the full year, our operating cash outflows were approximately $32,000,000 with total capital expenditures of roughly $70,000,000 dollars The operating cash outflow included approximately 18,000,000 in cash payments to Baker Hughes under the JDA in 2024.

Thus, the operating cash outflow in 2024 excluding the Baker Hughes JDA cash payments was approximately $14,000,000 Looking ahead to 2025, we’ll continue to deploy capital prudently focusing on advancing our validation program at La Porte through Phases one and two as well as preparing for phases three and four. On the funding side for SN1, if we had $1,700,000,000 to $2,000,000,000 today, we’d wrap up the value optimization exercise this year, declare FID at year end and break ground in the middle of twenty twenty six to target having the plant online in 2028. We’re keeping things moving on many project fronts to preserve the ability to deploy Project Permian as quickly as possible, but there will be a day for day slippage in first fire until we reach FID. So if FID occurs middle of next year, we’d expect to have the plant online in 2029. But given the uncertainty in raising the capital, it’s nearly impossible to attempt to put a date on when we could reach FID.

As Danny mentioned, we’ve earmarked $200,000,000 in our liquidity for SN1. We spent about $50,000,000 to date on engineering and long lead items. We believe current SN1 economics can support up to approximately $600,000,000 in project level financing, which combined with our $200,000,000 and initial indications from our strategic owners, leaves roughly $600,000,000 to $900,000,000 in new capital needed to fully fund the project. We’re actively exploring strategic partnerships and capital solutions at both the project and NetPower levels to fill this gap. Now, like many of you know, the investment proposition for NetPower is to develop and license these plants, not to be the constructor and owner of them.

We’re well capitalized to develop our technology and get it commercial ready, but we’re not properly capitalized to fund and FID the projects themselves. They’re just too big for a company of our size. But they are certainly right sized for the broad array of customers looking to install hundreds of gigawatts of clean reliable power generation over the coming decade. Our balance sheet gives us significant runway to execute our 2025 priorities while navigating the challenging market environment. We remain focused on maximizing the value of our proprietary net power cycle and positioning the company for long term success.

With that, I’ll pass it back to Danny for closing remarks before we open it up for Q and A.

Danny Rice, Chief Executive Officer, NetPower: Thanks, Akash. To wrap up, our mission remains clear, to deliver clean, reliable and affordable power at scale. While the macro environment presents challenges, particularly around costs and capital access, it also underscores the immense opportunity for net power. The world needs solutions that balance load growth with decarbonization and we believe our technology is uniquely positioned to meet that. With our focus on cost optimization, modular design and strategic partnerships, we’re committed to getting SN1 across the finish line and paving the way for future multi unit deployments.

We’ll continue to advance our utility scale validation testing with Baker Hughes at La Porte, complete our value engineering for SN1 and line up the capital to break ground. At the same time, we’ll keep exploring opportunities to unlock the embedded value of this technology whether through licensing, industrial scale applications or new deployments. We’ve got a lot of work ahead, but I’m confident in our team’s ability to execute and deliver value to our shareholders. So with that, operator, let’s open it up for questions.

Conference Operator: Certainly. We’ll now be conducting a question and answer session. Our first question is coming from Thomas Merrick from Jan and Michael Reis. Scott, your line is now live.

Thomas Merrick, Analyst, Jan and Michael Reis: Good morning, Danny, Brian, Akash. Thanks for all the details on the call, especially with regards to CapEx and what you’re working on. And I have a couple of questions on CapEx, not surprisingly, but appreciate congratulations on getting the fee done and no technical fatal flaws there. So congrats. On CapEx, I’m wondering if you could break out labor costs, maybe labor productivity assumptions within the feed at this point and you just had to think about some of those changes versus prior expectations and maybe raw materials in there as well?

Brian Allen, President and Chief Operating Officer, NetPower: Hey, Thomas, this is Brian. Thanks for the question. Yes, we’re not going to be able to provide a breakdown at this point, but I will provide a summary of some of the drivers here. First of all, there’s, I’d say, market supplydemand imbalance that we’ve been seeing in the energy industry and whole electrical gear, for instance. So some of the things that we’ve been releasing long leads, I’d say, and others are supply demand challenges.

Others are just the escalation that we’ve seen in the industry across the board. I will note that on Permian, as you work through the feed, all the site specific issues start to emerge in a real project versus, let’s say, standard type dollar per kw or early indicative numbers we’ve put out in the past. And then we talked about those in our prepared remarks. So it’s really a combination of all of those things of, let’s let’s say, supply demand, pure escalation on some of the material and labor and then first of a kind issues with our first project that we have to add extra scope and certain things to make sure the plant operates reliably and we compare some of those back once SM1 operates for future plants. And then you have the Permian specific items.

So they’re somewhat all intermingled. It’s kind of hard to break it up into percentages, but in totality, that’s what drove the increase.

Thomas Merrick, Analyst, Jan and Michael Reis: Got you. That’s helpful. And then follow-up question just on broader CapEx for thermal technologies. I think everyone is pretty familiar with the numbers you cited as well as the chart in your deck, so appreciate that. But I’m asking this question more from your perspective with your owners group and your partners.

Just how do you see thermal CapEx declining over the next several years as folks look to bring projects online? You’re getting from 2,200 to 1,000 for an unabated CCGT certainly seems somewhat ambitious. So just how do you from your conversations, how do you see that transpiring? And then the kind of follow-up to that and then I’ll be done is just as you have conversations with potential data center operators, how are they looking at these cost increases as potentially an opportunity to kind of bridge a funding gap? You’re certainly thinking of, Akash, that $600,000,000 and $900,000,000 gap you mentioned.

So all of those would be helpful and appreciate it. Thank you.

Danny Rice, Chief Executive Officer, NetPower: Hey, Thomas, this is Danny.

Conference Operator: I

Danny Rice, Chief Executive Officer, NetPower: think when we look at the cost of really with the marginal cost of new supply, which is the combined cycles at $2,200 kw, that kind of back of the envelope gets to like $65.70 dollars per megawatt hour for their LCOE. From our vantage point, we don’t think we’re going to see CapEx deflation anytime soon, while people continue to have pretty tight supply chains going up to the beginning of next decade. So we’re not contemplating, we’re going to see this deflation as another way for us to see CapEx reductions. And I think that’s one of like the big reasons behind this initiative on, all right, let’s start to get ahead of really being able to scope out cost savings of this multipack deployment. Because I think, as Brian kind of talked about earlier, one of the bigger drivers of just the project Permian or really the first project being the most expensive one is because it’s going to be a single unit pack.

Whereas, we can say here confidently saying, today, if we can deploy this in two to four pack installments, you’re going to see meaningful CapEx reductions on a per unit facility. So that plus the prefabrication, the modularization and sort of that coastal application is going to be a huge driver of cost reduction for us, absent deflation in the power sector. We just don’t see it coming. And so I think, as we look at where do we think we need to get to with CCGTs at $65 70 dollars maybe that goes to $75 those things being contracted at $90.95 dollars per megawatt hour. We’re going to be sending a bogey that’s not going to be terribly higher than that.

But for us to be able to get to that sort of number, it’s going to require us getting into that multi plant sort of configuration in an area that’s not quite challenging for construction, which means trying to get to places where we don’t necessarily have to stick build everything the way we’re going to have to for the first plant. But kind of like we’ve said all along, the first plan is really to prove the technology. It’s not going to be the plan that demonstrates the economics. It’s to prove the safe reliable operations. And so the bigger initiative for the first one isn’t so much on demonstrating the economics, it’s getting the project funded.

And so with this CapEx increase that we’re seeing right now, it’s really just a function of can we get the CapEx down to a place that we can get it funded. And I think part and parcel with being able to get it funded is being able to demonstrate a pathway to a really, really competitive LCOE relative to the next best alternative, which is an unabated CCGT.

Akash Patel, Chief Financial Officer, NetPower: And then, Thomas, maybe I’ll take the second part your second question there, which is how do we think about the funding gap and what are the different avenues and potential counterparties to help with that. So I’d say broadly, there’s really four ways to approach funding, right? There’s project level capital. There’s NetPower top coat level capital. There’s government support, whether that’s the DOE at the federal level or the Texas Energy Fund at state level.

And then the fourth, it kind of can go to both top the top coat or project, which is commercial partnerships, right, whether that’s partnering with your offtaker, whether that’s partnering with another strategic to have preferential treatment on deploying projects and those types of things. And so we’re thinking certainly very creatively on how to pursue all of those areas, particularly that last leg of the stool there on the commercial partnerships.

Conference Operator: Thank you. Next question is coming from Martin Malloy from Johnson Rice. Your line is now live.

Martin Malloy, Analyst, Johnson Rice: Martin.

Danny Rice, Chief Executive Officer, NetPower: Good morning.

Martin Malloy, Analyst, Johnson Rice: I want to ask about the modularization in that path. And maybe if you might be able to talk about some of the milestones we should look for the timetable there. I think it’s modularization is proved to be effective in terms of reducing costs and reducing the construction timeline on larger projects and Baker Hughes on some LNG projects has proven that they’re capable of helping reduce the cost and everything through modularization. Could you just talk about milestones or timelines we should look forward with that?

Brian Allen, President and Chief Operating Officer, NetPower: Yes. Marty, this is Brian. Yes, you’re right. It’s a known lever that’s really powerful, right, which is why we’re pursuing it. I would say just stepping back to Permian, I mean, we’ve known and have been pushing for as much modularization as an inland site would allow.

But as I had said in my remarks, any inland site typically has hundreds of bridges and so forth that you have to traverse. So, it just sets a maximum logistical constraint. I would say with the speed we’ve been driving on this project, there’s still more to squeeze there in terms of more modularization at that project site. So that’s something we’re working with Zachary on the value engineering as we speak is just max out the size of the loads, pre assembly, prefabrication and smaller modules that we send to inland sites. Now back to coastal and mega module was always in our plans, but as Danny said, as you look forward to the future deployment of our technology, likely would be the most cost effective way, scale up to multi unit configuration and heavy modularization or mega module potentially with almost no inland transport.

So we’ve already kicked off work with an engineering firm on that. And this year, we’ll look for feasibility and or potentially pre FEED to start getting a design together and indicative costs. I think in future quarters, we’ll lay out milestones that you should expect, but right now, that’s the work we’re going to do this year to quantify that and quantify, as Danny was saying, future target LCOE that we could hit with that configuration.

Martin Malloy, Analyst, Johnson Rice: Great. And for my follow-up question, just wanted to ask about with the new administration, any change in terms of discussions with the DOE or anything else you might be able to add to how much support there is for this type of project?

Danny Rice, Chief Executive Officer, NetPower: Yes. That’s a great question, Marty. I mean, we can’t talk about specific combos, but I would say at a high level, I think if you look at all of the qualities of net power in terms of its ability to use domestic natural gas in certain applications, you can use the CO2 to increase oil production, domestic oil production. Those are the two key pillars of the Trump administration and what they’re trying to achieve over the next four years is really just ensure domestic energy security. And I think NetPower is able to do both of those along with the third one, which is reliable power with the load growth that we’re seeing and the importance of reliable energy in the scope of AI and geopolitical security that way.

So I think everything that NetPower stands for really aligns with the Trump administration, and we’ll see where things go there. And then I think like the other piece that’s still hanging out there is the fate of the 45Q, what’s going to happen. It’s still to be determined. It’s interesting where you hear from some people, oh, is 45Q going to get cut? And then you hear from others, is 45Q actually going to get increased with changing the effective date for the inflation rate, which could add $10 to $20 per tonne and then also getting to utilization parity with permanent sequestration, which would take the $65 up to the $85 So there’s a couple of like credible scenarios out there where you can see the utilization go from the $65 to something like $105 and the $85 go up to the $105 also.

Those two things would definitely be beneficial to us. And look, I think when we look at it from our vantage point today, seeing this inflation that we’re seeing, it’s all the more reason why you probably should see an increase in those sort of features, because the inflation that we’re seeing today isn’t specific to our technology. It’s really a byproduct of what you’re seeing on this reactive load growth generation being built for by CCGTs. So I think for technologies emerging technologies like ours to have a real good chance at success, I think support from programs like the 45 Q is pretty imperative.

Martin Malloy, Analyst, Johnson Rice: Great. Thank you. I’ll turn it back.

Conference Operator: Thank you. Our next question is coming from Noel Parks from Tuohy Brothers. Your line is now live.

Noel Parks, Analyst, Tuohy Brothers: Hi, good morning. Just a couple of things. It does seem that we’re sort of in a situation with the AI driven power demand that’s on the horizon with the industry, the power players all needing to crowd through the same door essentially to deliver the capacity that’s needed, whether traditional gas turbines or microgrid solutions, gas based and otherwise. So if there are similar cost increases on the way for other generation projects based on the factors that are affecting you, Do you think that the power end users and prospective end users are realistic at this point about how tight the crunch is going to be?

Danny Rice, Chief Executive Officer, NetPower: Yes, it’s a good question. I think, yes, we talk about that one a bunch internally a lot. Does the market have a really good handle on where power prices are going and probably more so than just power prices, but just availability of power? I mean, my opinion is no. I think the market is still extremely, extremely tight through the end of the decade.

We’ve started to exhaust some of just the production capacity of CCGTs. And I think that’s probably one of the reasons why we’ve said, hey, we’ve been pushing it really, really hard to try to get this first project on as soon as we possibly could. I think the typical order of operations that any large project developer of some of our magnitude would go through is, let’s do the FEED, let’s then get to FID and then we’ll start releasing long lead items. But I think the way we went about it was, we need to get this first plan on as soon as possible and we’re not going to go into traditional order of operations. We started releasing long lead equipment while we were conducting the feed.

And I think as we got to the end of the feed, we said, hold on, this market in the demand that we’re seeing today, it’s going to be there for the next ten to fifteen years. And so is it really worth us really compromising the health of our balance sheet and the credibility of the company to try to move it at a breakneck pace that doesn’t get us to the market any sooner. It probably just makes it a little bit harder for us as we continue to have just potential road bumps along the way. So what we’re really doing now is having like this healthy pause to recalibrate, really understand what the market potential is, really understand what our plant competitive economics look like. I think we’re still in a position where we have pretty good line of sight of being the lowest cost form of clean farm power and not just on an absolute basis or a relative basis, but on a timescale basis.

And I think that’s really like the most important part is, this is a world that needs as much reliable generation as it possibly can get. And I think what we’re seeing in the market today is the market doesn’t really care if it’s clean or not. They just care if it’s scalable, it’s reliable and it’s available today. And it will build as much of it as it can. And if it happens to be affordable, that’s great.

And so we kind of see this mark continuing to grow and people have quickly moved from trying to find solutions for ’26 and ’27. They’re now looking at ’28 and ’29. As you can see with the CCGT supply chain, folks are looking at 02/1930 and 02/1931. We’re hearing people starting to FID projects in 02/1932. And so, I don’t know, I think we’re in a pretty unique place where we’re talking about being able to bring a first of a kind pretty transformative clean gas technology to the world this decade.

I think it’s pretty incredible for us to be in. And so I think what we can really do is just ensure we take our time to get it right because the world needs solutions like this just as much as it does anything else.

Noel Parks, Analyst, Tuohy Brothers: Right. Absolutely. And to the degree you can kind of characterize it, For the more or less straight financial potential financial partners that you had contact from or talked with, just curious, are there any types of issues that are coming up a lot? I think about things like nearer term financial commitments versus longer, more involvement in what could be PPA type activities. I’m just sort of wondering what the financial players coming to the table have on their mind right now, assuming, of course, everything that we’ve that everyone’s talking about just with AI and power demand?

Akash Patel, Chief Financial Officer, NetPower: Yes. No, I’ll take that one.

Danny Rice, Chief Executive Officer, NetPower: This is

Akash Patel, Chief Financial Officer, NetPower: Akash. I’d say the vast majority of the, I’ll say, strategics that we’re speaking to, whether that’s folks that want to do offtake or folks that want to provide infrastructure capital or folks that want to participate to decarbonize their own operations, I. E. Utilities or oil and gas, They’re all focused on not just the first unit, it’s what is the pathway for us to deploy these net power units at scale. And so it’s really a focus on the 02/1930 to 02/1935 timeframe and how does our ramp up and their ability to really deploy and use the learnings from the first one in their company and gain comfort on construction, operation, commissioning, etcetera, allow them to really hit the ground running in the 02/1930 timeframe.

And I think that timing lines up pretty well given at this point, if you’re talking about a new unplanned CCGT, you’re in the 2030s. And so our timing of when we really plan to ramp is really aligned with the work they’re doing right now for any type of new large scale power generation.

Noel Parks, Analyst, Tuohy Brothers: Great. Thanks a lot. Very helpful perspective.

Conference Operator: Thank you. Next question is coming from Nate Pendleton from Texas Capital. Your line is now live.

Akash Patel, Chief Financial Officer, NetPower: Good morning. Thanks for taking my questions. Can you provide additional details on the industrial scale Net Power Platform? Specifically, how should we think about the total addressable market there? And can you provide any high level differences in how the royalties may be structured between utility scale and industrial scale plants?

Brian Allen, President and Chief Operating Officer, NetPower: Yes, this is Brian. Yes, we’re really excited about that platform. This is similar to other technologies. You need different sizes and shapes for the different market needs, right? It does open up really a whole new market compared to the utility.

We just talked prior about scaling these plants up to 600 megawatts to a gigawatt, but there are many industrial applications that need 20 fourseven clean power at just a smaller scale behind the meter LNG, other applications we spoke about. So, it does open a new TAM, which I’d say we’re not ready to lay out values on that just yet, but we will in the future. As far as the size of this, I would say, again, the work that Baker is going to do with Woodside and others and us is really nail down what is that target best fit across multiple different sectors. But you should be thinking it’s less than half of, let’s say, the utility scale size, but still to be nailed down as they develop that program, what’s the optimal fit.

Akash Patel, Chief Financial Officer, NetPower: And then I guess I can chime in on just how to think about the licensing aspect of it. This program is really driven by Baker and now Woodside as their first partner in this. We are a pure licensor in the industrial scale platform. And so when you think about like what is NetPower’s role here, yes, we will provide technology support, but we are effectively going straight to the end state that we would go to at the utility scale, right, which is we will sell a license, we will earn revenue on that license, but we are not really subject to material capital outflow to get that program or to get a facility bill. Got it.

I really appreciate the detail there. And then shifting gears a bit to your MOU with Carbon Terra Vault. Can you speak to the opportunity you see in California for net power plants? And at a higher level, how do you expect to use partnerships like this and other agreements ahead of the Project Permian startup?

Danny Rice, Chief Executive Officer, NetPower: Yes. So the Carbon Terrell one, I mean, it’s a really, really exciting one. So the CRC folks control a lot of just depleted oil and gas fields in California that have been produced over the last one hundred years. And now the CRC folks are in possession of close to 1,000,000,000 tons of CO2 storage capacity across their entire acreage position. And so we just collectively came together and said, hey, you guys have all the storage capacity, you want to fill it up and we have these clean gas power plants that are just carbon capture factories.

And so if there’s a way that we can co locate our power plants above your CO2 storage vaults, vaults. That’s quite synergistic to both of our firms as well as to just the state of California because you’re able to provide new baseload power generation in a state that hasn’t had a baseload power generation facility built in the last decade. So there’s a lot of really just nice attributes about this that makes sense all around. And so just part of the scope of what we’re doing with the CRC folks right now is really scoping out that first gigawatt of plants that we want to put in California, where do we want it to go. And I think a lot of that’s really going to be instructive coming out of this modular multi plant pre feed program that Brian and the team are going to be running this year.

A lot of stuff coming out of that, a lot of the information coming out of Project Premier Inn with its stick build application is going to be pretty helpful and really helping us really understand optimal locations, optimal scope for successful projects in other states. But right now, like the big focus for this year is wrapping up the Permian work on the value engineering and then really getting to work on this multi pack configuration pre feed that the team is going to be doing. And those two pieces of information coming out of those is going to be really helpful with figuring out how do we prioritize some of these other areas for the early 2030s.

Martin Malloy, Analyst, Johnson Rice: Understood. Thanks for your time.

Conference Operator: Thank you. Next question is coming from Ryan Levine from Citi. Your line is now live.

Ryan Levine, Analyst, Citi: Thanks for taking my questions. In terms of the number of resources or particularly human resources pursuing this opportunity, has that scaled up or down in recent months, both through NetPower and your strategic partners around developing the technology?

Akash Patel, Chief Financial Officer, NetPower: Yes. I think the general answer is we continue to build out the team. I mean, if you look at NetPower as an organization, we added a bunch of folks in 2024, a lot of key technical roles which Frank can get into. And then if you just look at across the technology development between us, Baker, all of our SMEs, Oxy, Constellation, there’s hundreds of people working on this thing on any given day. But I’ll let Brian chime in further.

Brian Allen, President and Chief Operating Officer, NetPower: Yes. No, that’s right. I mean, Zachary has a large team that’s only grown same with Air Liquide on the feed work, same with Lummis and their multiple sub supply chain that they’re bringing in. As Akash said, I mean, we’ve identified where the technology needs are in gaps and built out an incredible team at our company that have expertise themselves in air separation plants, heat exchangers, turbomachinery, etcetera. So we’ve only grown our key partners have only grown.

And then this also takes, let’s say, dedicated specialty contractors, which over time we’ve identified who are best in class and can fill in any technology or commercial gaps. So, yes, only been increasing to this

Ryan Levine, Analyst, Citi: point. Great. Thanks. And then on Slide eight, you referenced that you’re focusing more on U. S.

Gulf Coast opportunities. Previously, you had highlighted some North MISO opportunities. Are those no longer being pursued or are those delayed from commercial development opportunities?

Danny Rice, Chief Executive Officer, NetPower: They’re still being they’re not being delayed so much, Ryan, as it is just I think as we think about slotting of what are project numbers two through 10 going to be. I think we really want to get to a place where we can demonstrate the lowest LCOE we possibly can on just that pathway to just broader commercial success. And so for us, it’s really just about being able to slot things in the order of lowest cost first, right? And so just coming out of the Permian feed, I think it really indicated to us that being able to prefabricate and develop things on a coastal sort of application is probably where we want to start. Now, I think when most people think of coast, they think of just Gulf Coast, right?

But you also have riverways, waterways, Lake Michigan, for example, is a place where you could possibly be on the coast there. So we’re not necessarily just relegated to the Gulf Coast, but it’s obviously a pretty interesting one to start because you have a lot of the prerequisites already in place with the natural gas infrastructure, the CO2 infrastructure, the power infrastructure, as well as potential industrial gas infrastructure, to be able to really optimize the value of the ASU that’s part of this plant. So there’s a lot of really nice things about the Gulf Coast that make it really attractive to us. And again, as everybody knows, ERCOT is a pretty friendly place for us to be in. And so it’s an area that the origination team is already starting to poke around on.

Ryan Levine, Analyst, Citi: And then last question for me. In one of the portfolios in Northern Indiana in Zone 6, they have CCUS generation as one of the preferred portfolios. Is that an opportunity you’re pursuing in Northern Indiana power market?

Danny Rice, Chief Executive Officer, NetPower: Can’t comment on that specific one exactly. But, yes, I mean, the whole part of MISO is pretty interesting geologically. So hopefully, whether it’s us or other folks, it hopefully gets exploited because the rock there is pretty good and again it’s an area that needs as much firm generation as it can get.

Ryan Levine, Analyst, Citi: Great. Thanks for taking my questions.

Conference Operator: Thank you. Next question today is coming from Wade Tseki from Capital One. Your line is now live.

Wade Tseki, Analyst, Capital One: Good morning, everyone. Thank you for taking my question. Just wondering if you could expand a little bit on some of the, let’s call it, commercial activities, dialogue with customers? And if you wouldn’t mind maybe touching on the opportunities up in Alberta that you’ve kind of spoken to before, that would be great. Thank you.

Danny Rice, Chief Executive Officer, NetPower: Yes. I mean, we’re working through Alberta pre feasibility with our partner up there. And so that’s progressing. I think for all of these projects, they’re really just following the lead on what we’re doing at Project Permian and really what we’re going to be doing with this multi pack, pre seed that Ryan and the team are running. So there’s going to be a lot of really just good insights and information coming out of those two endeavors that are going to be really helpful as we really start to scope out both the project size, but also just the timing of some of these other projects.

And then just elsewhere on the commercial piece, we’re talking to the big tech folks, which isn’t a surprise. I think everybody under the sun is at this point. So those conversations are progressing, but I think everybody really is focusing on us and what is the long term economics of this plant going to look like? How is this going to stack up against nuclear? I think there’s a whole host of folks that have already started to turn their attention as nuclear is going to be the solution, which is sort of ironic because 100% of what’s really getting developed today that’s base load is gas based.

And I think from our vantage point, a lot of people really aren’t paying attention to how low cost and reliable clean gas power can be, whether it’s a solution like NetPower or something like PCC. I think with the design that we have, we think it’s just going to be a better mousetrap versus any of the other alternatives. And there’s probably like no better example of it. When we’ve seen over the last year just this massive demand for CCGTs, the forward gas curve really hasn’t moved up that much. And it will continue to creep up, but I think it really just reinforces how abundant in low cost natural gas is here in The United States to be the preferred feedstock for the next generation.

And so that just gives us a whole lot of comfort that being able to design a gas based solution to provide that reliable power for the grid’s needs is such a huge competitive advantage. So us having a gas based solution, for us,

Conference Operator: it’s

Danny Rice, Chief Executive Officer, NetPower: a huge advantage. And I think when we eventually couple on getting past this sort of near term frenzy to be able to add as much generation as we possibly can. Obviously, CCGT is being deployed because it’s the most available today off the shelf, right? But I think once the industry gets its feet under itself and it can start to actually add clean, reliable generation, I think that’s really where you’re going to see a technology like NetPower shine. And so, we do have the benefit of time to ensure that we get it right.

Ensure we get it right, not just in terms of the technology working, but getting it right in terms of the economics and being able to compete, with the carbon emitting alternative and the other clean alternatives. So, we’re going to get it right. We’re because I think that’s what the shareholders deserve.

Wade Tseki, Analyst, Capital One: Great. Thank you. Any movement internationally you can kind of speak to?

Danny Rice, Chief Executive Officer, NetPower: No, not really. I mean, there’s areas on the international markets that we’re really interested in. I think part of the Baker industrial program that they’re going to be doing with Woodside, that’s a really cool program for the international opportunities, especially on the LNG side. So that’s going to be a great place for them to take a look at. But for us, when we look at just the markets where this plant makes the most economic sense, North America between The U.

S. And Canada is where it’s at just because of the access to low cost gas and especially here in The U. S. A favorable carbon pricing regime with the 45Q. So U.

S. Is the best place and that’s ultimately where we’re going to start the cost down curve exercise. And certainly as we’re able to get our CapEx down as we scale this thing into manufacturing mode, it will start to open up some of those international markets where there may not be such a favorable economic regime for gas based solutions. But we could like we’ve kind of said on prior calls, we could just sit here in The United States for the next twenty years and be okay. And so while we will eventually expand into some of those other markets, especially on an opportunistic basis, being able to have all of our resources focused in The U.

S. Is probably the right thing for the business, but it’s also probably the most prudent thing in terms of making sure that we’re not spending too much on the G and A side to try to chase too many opportunities.

Wade Tseki, Analyst, Capital One: Understood. Thank you so much. Appreciate you taking my questions.

Danny Rice, Chief Executive Officer, NetPower: Thanks, Brady.

Conference Operator: Thank you. We reached the end of our question and answer session. I’d like to turn the floor back over for any further or closing comments.

Danny Rice, Chief Executive Officer, NetPower: Okay. Thank you, everybody, for joining us on our call today. It’s this is a pretty dynamic market. NetPower is a pretty dynamic technology. We’re going to continue to adapt responsibly to the market’s needs.

And I think today is probably no better example of we need to be nimble, we need to be reactive and responsive with an unwavering focus on the long term vision of delivering low cost, clean, reliable, affordable power. So, appreciate everybody’s support, appreciate everybody’s long term view and look forward to chatting with you all next quarter.

Conference Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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