Q2 2023 Net Power LLC Earnings Call

Speaker 1: Greetings. Welcome to the NetPower Inc. second quarter 2023 earnings call. At this time all participants are in a listen only mode.

Speaker 1: A question and answer session will follow the formal presentation.

Speaker 1: If anyone should require operator assistance during the call, please press star zero on your telephone keypad.

Speaker 1: As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Bryce Mendes, Director and Investor Relations. Thank you, you may be getting.

Speaker 2: Good morning, everyone, and welcome to NetPower's second quarter, 2022, 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, Occox Fittel. This morning, we issued our Earnings release for the second quarter of 2020.

Speaker 2: During this call, our remarks and responses to questions may include forward-looking statements.

Actual results may materially defer from those stated or implied by forward looking statements to risks and uncertainties associated with our business.

These risks and uncertainties are discussed in our SEC file links.

Please note that we assume no obligation to update any forward-looking statements.

With that, I'll now pass it over to Danny Rice, NetPowers Chief Executive Officer.

Thanks, Bryce. Hello, everyone. Welcome to NetPower's inaugural earnings call. Many of you have been following the NetPower story since we announced the transaction to take NetPower public back in December 2022. But for all the new investors in NetPower, I'd like to provide a brief introduction to the NetPower story and an overview of our technology.

Brian and I will then provide an operational update and discuss our corporate strategy before passing the call over to a coach to discuss our financial results for the quarter. We're going to reference a few of the slides in the presentation we post into our website this morning so I advise you to have those slides open and follow along. But first, let me set the stage a little bit and give some background to the opportunity as we see it.

It's been six years since my last earnings call. Back then during my time running Rice Energy we unlocked the supply potential of U.S. natural gas which has become the lowest cost source of energy in the U.S. and the world. As a result here in the U.S. natural gas replaced coal as the number one source of power generation in the world.

and has been the number one driver of lowering USC or two emissions. Lowering the cost of power and lowering the emissions from power that is our North Star. So we hear again on the public stage containing this mission with a technology that gets us even closer to that North Star. Net power, a technology that transforms the natural gas into one of the cleanest sources of water.

Let's start with a little background how we got here.

I joined NetPower's CDO upon the successful close of the business combination between NetPower and RICE acquisition corp2 on June 8th this year. We formed RICE acquisition on the premise that energy demand will continue to grow on every corner of Earth and it's imperative we continue to develop new sources of low cost energy to meet this growing demand.

and with growing trends and electrification of everything, more and more of that energy demand shifts to the grid.

So our Rice Acquisition Corp, we specifically set up to find the best technology to generate this low emission power without compromising energy affordability or reliability.

So there were four key tenets to our assessment.

How reliable is this power? How affordable is it? What's the carbon intensity and what's the technological maturity?

The solution we chose had to be better than the status quo across the board and it had to be commercial this decade. With this criteria in hand we proceeded to evaluate all sources of power. We looked at nuclear, both conventional and small modular reactors. We looked at all shades of hydrogen. We evaluated geothermal, hydro. And then you have this company in its own little bucket, Net Power, which a decade ago invented a new way to generate low cost power from natural gas with no emissions. Knowing what we know now about natural gas, we have over a century's worth of very well known, very low cost natural gas that is the feedstock to this Net Power cycle. In terms of technological maturity, the Net Power team has spent the last 12 years designing the technology and ultimately proved it at a sufficient scale to conclude its technology will work at grid scale size.

So here we have a better way to generate power using natural gas that creates no emissions. And with the existing incentives that we have here in the United States, the IRA, and 45Q, not only can a net power plant be a source of clean, reliable energy, but can also be more affordable than the carbon mining alternative.

So that's really the macro setup for this company and it's a pretty special position for us to be in. So to really contextualize our thesis, I'll direct you to slide six of our investor presentation posted to our website this morning.

The Y-axis is levelized cost of electricity stated in dollars per megawatt hour. This figure is the price at which the asset owner needs to sell their electricity in order to generate a 10% return on their investment.

The x-axis represents life cycle emissions in grams of CO2 equivalent per kilowatt hour of electricity produced. This is the amount of CO2 emissions turning these raw materials into power.

We should want to get closer to zero cost, zero mission power. That in itself will never exist, but that is the direction we should be heading.

So to get you oriented, the yellow circle in the center of the chart is where we are in the US today. Our grid system has an average carbon intensity of 390 grams per kilowatt hour and an average cost of power of $52 per megawatt hour. For context, a decade ago that yellow dot was up and to the right.

higher cost, and higher carbon intensity. But because of coal-to-gas switching, we witnessed a meaningful reduction in both carbon emissions.

So on this chart, we've plotted all of the possible sources of scalable power that we have at our disposal, and you can visually see the potential trade-offs.

You can reduce emissions with nuclear and renewables like wind and solar, but it comes at a markedly higher cost of power and in the case of renewables, challenges with reliability even with batteries. You can reduce emissions with nuclear and renewables like wind and solar, but it comes

But look at where NetPower lands on this chart.

Our first utility scale plant, which will inherently be the most expensive plant we ever manufactured, delivers the same cost as our grid today, but with markedly lower life cycle emissions.

Our first plant is more than half the price of nuclear and delivers the same reliable around the clock clean power. And as we scale into manufacturing mode, our plant capex will go down and our cost of power drops dramatically into a quadrant all by itself. Meaningfully lower emissions and meaningfully lower costs than any source of power today.

This is a map of the United States grid and every country will look different. Some countries will have a lower cost of coal power, a higher cost of gas power, a higher cost of renewables, et cetera. But deploying just in the US market will keep net power busy for decades. We estimate that replacing every retiring base load power plant in the US over the next 20 years.

the consumer, the environment, our customers, and our shareholders.

Turning to slide seven, the best way we can describe the macro environment for power generation is a growing tug of war between two camps. On one side, the regulatory regimes tasked with driving a reduction in future emissions and on the other side, the electricity grid operators tasked with ensuring access to reliable and affordable power. For more information, visit www.fema.gov

Right now, there's no single solution that satisfies both sides, and again, is where net power fits in.

On the regulatory side, the EPA recently proposed new carbon emission standards for current and new fossil fuel fired power plants.

The proposed rules recommend that large-scale base load coal and gas power plants capture or eliminate 95% of their emissions by 2035. Now there's no technology able to do this today and the only solution coming down the pike that we think will be able to do this is net power. Interestingly net power with the technology referenced more than any other in the EPA report is having the ability to meet their standards.

which we agree. On the industry side, grid operators across the U.S. are making siren calls that we're not building enough reliable dispatchable power capacity to replace the existing aging fleet across the U.S., which will cause issues for cost and access to power down the road.

The average coal-fired power plant in the US is over 40 years old. Same with nuclear. Metro gas plants are approaching 30 years of age in average.