Q2 2024 Net Power Inc Earnings Call
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Speaker Change: Greetings. Welcome to the NetPower second quarter 2024 earnings call. At this time, all participants are in a listen-only mode.
Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the call over to Bryce Mendes, Director of Investor Relations. Please go ahead.
Bryce Mendes: Good morning everyone and welcome to NetPower's second quarter 2024 earnings conference call.
Speaker Change: 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.
Speaker Change: Today, we issued our earnings release for the second quarter of 2024, which can be found on our investor relations website, along with this presentation at ir.netpower.com.
Speaker Change: During this call, our remarks and responses to questions may include forward-looking statements.
Speaker Change: Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business.
Speaker Change: These risks and uncertainties are discussed in our SEC filings.
Speaker Change: Please note that we assume no obligation to update any forward-looking statements.
Speaker Change: With that, I will now pass it over to Daniel Rice, NetPower's Chief Executive Officer.
Daniel Rice: Thanks, Bryce, and thanks, everybody, for joining us today. On the call, we'll reference several slides from our Q2 presentation, and we encourage you to have it handy.
Daniel Rice: It was a productive quarter for the NetPower team as we continued to make steady progress across our three strategic pillars and our 2024 milestones.
Daniel Rice: As we've mentioned on previous calls, we're focused on several key initiatives.
Daniel Rice: First and foremost is commercializing, improving our clean power technology at the utility scale. Our first utility scale plant remains on schedule for startup between the back half of 2027 and first half of 2028.
Daniel Rice: To ensure our first plant performance is designed, this fall, Baker Hughes and NetPower will commence the first phase of a rigorous TurboExpander equipment validation program at our report demonstration facility.
Daniel Rice: Second, we're building out our project backlog through our origination efforts across competitive power markets in the U.S. and Canada.
Daniel Rice: These originating projects were originally intended to accelerate early plant deployment after Sierra Leone comes online, but as we've seen over the last year or two, the U.S. is entering a period of meaningful load growth that remains well short of new affordable, clean, firm power resources.
Daniel Rice: and the market opportunity for net power plants to meet this low growth is something our Origin Nation team is actively pursuing.
Daniel Rice: And third, we're standing up our strategic supply chain partnerships to ensure we have the ability to deploy dozens of these plants per year by the early part of next decade to meet the growing demand for clean, firm power.
Speaker Change: Let me spend a couple of minutes on the macro and our competitive positioning before turning it over to Bryan and Akash for the operational and financial updates.
Speaker Change: For the first time in a long time, we're seeing around-the-clock load growth, primarily from continued electrification of everything and new demand from things like data centers.
Speaker Change: We believe clean, 24-7 firm power solutions like ours will make or break the world's ability to achieve its energy needs economically without compromising its environmental goals.
Speaker Change: And as we sit here today and assess the competitive landscape, we continue to see data points and anecdotal evidence that we're designing the most cost-effective clean power solution in the world.
Speaker Change: Even the IP moat we've built around this business.
Speaker Change: In the decade or so the team has poured into developing and refining our clean power plant, we think we should have a meaningful head start through 2040.
Speaker Change: The supply chain constraints facing the entire power industry, carbon emitting or not, is shifting the market's focus to 28 to 2030 and beyond, which bodes well for us to capture this demand as we scale into full-scale manufacturing mode shortly after our first plant is online.
Speaker Change: In terms of our competitive positioning, we've still seen that power is the most economical clean firm solution.
Speaker Change: For the first time ever, load growth to 24-7 power means that levelized cost of energy, or LCOE, must be assessed on a 24-7, 365 basis.
Speaker Change: And we believe our solution will be more economic than new nuclear, renewables with long-duration energy battery storage, renewables with gas peakers, and gas plants with post-combustion carbon capture.
Speaker Change: Our early plants will be our most expensive, and for these, we're targeting geographies with the most favorable economics, excellence park spreads, low cost to sequester the CO2, and robust government incentives. Regions like Miso, Alberta, and certain parts of ERCOT fit the bill.
Speaker Change: That said, we believe our first plant, which will likely be the most expensive one we ever build, will still be highly competitive with any other clean farm power alternative.
Speaker Change: That's a very profound and important starting point, and as we step into manufacturing mode, we are targeting an LCOE of $60 per megawatt hour in many places across North America, which we think unlocks an obtainable market of 800 to 1,000 net power plants.
Speaker Change: This $60 includes the 45Q benefit, which amounts to approximately $20 per megawatt hour. So on an unsubsidized basis, we're targeting $80 per megawatt hour or less.
Speaker Change: Today, average U.S. power prices are approaching $60 per megawatt hour, with unprecedented load growth coming down the pike.
Speaker Change: Without sufficient generation capacity being added, we think grid reliability becomes compromised and power prices move higher. Neither of those are great outcomes for consumers, people, and small businesses alike, and we're seeing more tangible evidence across the U.S. of the consequences of underinvestment in large-scale firm capacity.
Speaker Change: Just two weeks ago, PJM's capacity auction, for example, for 2025 to 2026
Speaker Change: experienced major shortfall in reliable power bidding resulting in a 9x spike in capacity prices to over $280 per megawatt per day, the highest capacity prices PJM has ever seen.
Speaker Change: This comes on the heels of PJM and other system operators' reliability reports indicating there's more load growth than firm capacity being added. All to say, the results of the PJM auctions aren't a surprise to those following the space.
Speaker Change: But what is surprising is a disproportionate amount of resources and capital spent performing triage instead of addressing the underlying problem
Speaker Change: We also don't think that forward prices properly reflect the marginal cost of new capacity to meet base load demand growth.
Speaker Change: For new combined cycle gas plants, for example, we're hearing through the market costs in the $1,500 to $2,000 per kilowatt range, which is nearly two times the cost of a new gas plant compared to several years ago. That's consistent with what we've been seeing on our side.
Speaker Change: All to say, inflation across the traditional generation sector really narrows the economic gap between a carbon emitting plant and a clean net power plant.
Speaker Change: Carbon intensity wise
Speaker Change: The U.S. grid today is at around 370 grams per kilowatt hour.
Speaker Change: Net power is 40 to 75 grams per kilowatt hour. We comply with the EPA's proposed Section 111 BND rules, and installing net power from here on out in the U.S. would be a 75% reduction in U.S. power emissions.
Speaker Change: while improving grid reliability and ensuring power prices not much higher than where they are today.
Speaker Change: Just given the underinvestment in firm resources over the last five to ten years, there's a lot of capital and attention on batteries, which is more triage for grid reliability than it is a sustainable, low-cost solution.
Speaker Change: Batteries are inherently very expensive at over $200 per megawatt hour, but by further reducing the economic uptime that a new 24-7 power plant needs to justify being built, batteries only make this problem worse.
Speaker Change: And if the end goal is clean, reliable, affordable power, NetPower is far and away a better, more complete solution.
Speaker Change: But absent a total shift across policy, capital markets, and market demand, we don't see firm 24-7 resources being added fast enough, and we think power prices should be moving much higher.
Speaker Change: This, in turn, will only mean that our plants are more economic,
Speaker Change: thus supporting our commercial strategy to lead with origination and set the table for future deployments where our clean farm power plants can generate highly economic return to the power plant owners while delivering lower cost power and prevailing market prices.
Speaker Change: On the origination front, we continue to make significant progress across North American markets.
Speaker Change: Slide 7 highlights the regions we're spending a lot of our time originating future projects.
Speaker Change: As I've mentioned in the past, there are three main criteria to screen to ensure a Net Power plant's success.
Speaker Change: First is access to natural gas.
Speaker Change: Second is a market or designated market for the power, and third is ample CO2 storage, whether it's through permanent sequestration or enhanced oil recovery.
Speaker Change: Now, there are multiple regions across North America that check these three boxes, in addition to having supportive policies that further enhance the economic attractiveness of these prospective plants.
Speaker Change: As we've mentioned before, there are approximately 22 states.
Speaker Change: in the U.S. plus several provinces in western Canada that contain sedimentary rocks for geologic sequestration.
Speaker Change: Most of these territories happen to be in competitive power markets, which is where we're focusing most of our origination efforts today, and you can see on this slide where our team is focusing their efforts.
Speaker Change: One of the more interesting markets is Alberta, which has the right elements for success, and we believe could be one of the most attractive places in the world for us to establish some large-scale net power clean energy hubs.
Speaker Change: We're currently in the project feasibility phase of the origination timeline here, which includes conducting site-specific studies with our first partner in the region, commencement of a region-specific plant design, and initiating regulatory dialogue at both the provincial and federal levels.
Speaker Change: We're really excited about the Alberta market and look forward to sharing our progress going forward.
Speaker Change: Elsewhere, our Northern MISO project is progressing well. As a reminder, we filed our MISO interconnect application in the second quarter of 2024.
Speaker Change: Additionally, our sequestration partner has filed for its Class 6 CO2 sequestration permit, and with these items underway, we've begun the first phase of stakeholder engagement at the local and state levels.
Brian Allen: On a final note before turning it over to Brian, I'm excited to announce that NetPower officially opened its Houston office in July. We look forward to continuing to grow the NetPower team down in Houston, which has long served as an epicenter for energy industry talent. I'll now hand it over to Brian to give an operational update.
Brian Allen: Thanks, Danny. Turning to slide 9 in the presentation, as we have mentioned in previous calls, the upcoming testing campaigns that report will focus on validating and de-risking the Baker Hughes utility scale turbo expander and optimizing its operation within our cycle.
Brian Allen: The campaigns will follow four primary phases and will continue through 2026. We've added the expected timing for each of the four phases on the right-hand side of this slide.
Brian Allen: The first phase of testing, which will result in combustor burner down selection, is on schedule to begin in the fourth quarter of this year.
Brian Allen: The second phase is expected to begin in 2025 and will take the selected oxy-fuel burner from phase one and test it alongside a combustion liner and other hardware to form a single demonstrator-sized combustion can.
Brian Allen: The third phase of testing is expected to begin in late 2025 or early 2026.
Brian Allen: and will involve scaling the demonstrator-sized combustor can from Phase II to utility-scale can with clusters of burners and then testing it with the goal of learning and optimizing the design of the utility-scale combustor that will operate at Project Permian and beyond.
Brian Allen: Finally, the fourth phase is expected to start in 2026 and will test the full demonstrator turbo expander, including the validation of materials and design architecture to be used on the turbo expander for Project Permian.
Brian Allen: Turning to slide 10, the team continues to make steady progress on site upgrades to our Laporte demonstration facility in preparation for our upcoming equipment validation with Baker Hughes.
Brian Allen: To support Baker's Combustor Test requirements, we have added additional natural gas, oxidant, and CO2 piping that run to our Combustor Test Rig building, which will host Baker's Combustor Test Rig.
Brian Allen: Based on lessons learned from Net Power's previous report testing, we have installed upgraded flow measurement and other instrumentation to enhance our data acquisition that will ultimately help us improve our utility-scale control system.
Brian Allen: We continue to bolster NetPower's engineering team and our partner Constellation site operations staff ahead of the phase one equipment validation set to start in the fourth quarter of this year.
Brian Allen: The Baker Hughes Combustor Test Rig is shown on the right hand side of slide 10.
Brian Allen: It is currently located at Baker's Florence facility and is expected to ship to La Porte in Q3.
Brian Allen: Due to the plant upgrades we are making, we can vary the pressure, temperature, and flow of the CO2, oxidant, and natural gas that feed the combustor test rig to simulate the range of operating conditions that Baker expects to see in the actual turbo expander.
Brian Allen: Phase 1 testing will commence in Q4, beginning with ignition testing, and ending when we and Baker have operated each of the candidate burners through a full range of operational mapping and have made a final down selection.
Brian Allen: Phase 2 will begin next year using the selected burner and will test a Laporte-sized combustor can.
Brian Allen: Next, I will turn to slide 11 for the update on Project Permian.
Brian Allen: The project remains on schedule with initial power generation expected to occur between the second half of 2027 and first half of 2028.
Brian Allen: During the second quarter of 2024, we signed a limited notice to proceed with Baker Hughes for the release of all long-lead material required to maintain an on-schedule delivery of the utility-scale turbo expander to Project Permian.
Brian Allen: Our key upcoming 2024 milestones are highlighted on the right-hand side of the slide.
Brian Allen: We are advancing our front-end engineering design, or FEE, with Zachary Group.
John Zachary: We recently met with John Zachary and his leadership team to discuss the quarter-proof settlement between his company and the Golden Pass LNG project.
John Zachary: We had a constructive dialogue and are pleased that we will continue the same EPC contracting approach we initially envisioned when we started the feed.
John Zachary: Zachary continues the feed engineering to firm up equipment quotes and optimize the plant layout.
John Zachary: We have had several collaborative value engineering sessions to optimize the piping design and reduce the amount of CO2 volume in the system, and reduce the quantity and cost of high-pressure pipes.
John Zachary: Zachary will deliver their feed estimate and schedule expected in Q4 of this year.
John Zachary: To maintain the project schedule, we will continue to order long-lead components throughout 2024.
Speaker Change: We and Zachary are finalizing purchases for other long leads that have been identified, including 345 kV circuit breakers, a generator step-up transformer, a unit auxiliary transformer, and an air separation unit transformer.
Speaker Change: Other items may be added to this list as necessary to ensure we preserve the Project Permian schedule.
Speaker Change: Additionally, we recently finalized our ASU pre-feed and have begun our ASU feed with a standard 2 by 50 percent ASU plant configuration.
Speaker Change: So instead of a single large ASU unit supplying all of our required oxygen.
Speaker Change: There will be two smaller ASUs that will together account for the full oxygen input requirements for the plant.
Speaker Change: The two smaller ASUs have better operating flexibility to support our various power plant operating modes, including ramping up and down to support grid requirements, and optimizing liquid oxygen storage to serve as our backup oxygen supply and long-duration power storage.
Speaker Change: This ASU configuration decision was carefully made considering the tradeoff of many factors.
Speaker Change: and ensure success for both Project Permian and other future projects.
Speaker Change: Many of our target customer geographies are located inland, away from major ports and waterways, so this decision will better support truckable module shipping to a diverse range of customer project sites.
Speaker Change: This two-by-fifty percent configuration is also a better fit within ASU providers standard product offerings and should support modularization and a broader set of competition amongst their sub suppliers for equipment like compressors and heat exchangers.
Speaker Change: With that, I'll pass it off to Akash for the financial updates.
Akash Patel: Thanks, Brian.
Akash Patel: NetPower continues to prudently deploy our capital, ending the second quarter of 2024 with a strong balance sheet, including approximately $609 million of cash in investments.
Akash Patel: Consistent with the past several quarters, the current interest rate environment has allowed us to put our balance sheet cash to work to offset our corporate spend.
Akash Patel: In the second quarter, our cash flow used in operations was approximately $8 million, which included a cash payment of more than $3 million under the Baker Hughes JDA.
Akash Patel: We expect cash flow use and operations to continue increasing as we build out the organization, progress the joint development program with Baker Hughes, and ramp up activity at Laporte.
Akash Patel: For the quarter our total capital expenditures were approximately eight million
Akash Patel: comprise of approximately $4 million of capitalized costs associated with the ongoing Project Permian development activities, and approximately $4 million spent on report modifications and upgrades ahead of testing that is expected to begin in the fourth quarter of this year.
Akash Patel: NetPower's fully diluted share count was approximately 249 million shares as of June 30th.
Akash Patel: This was comprised of approximately 214 million Class A and B vested shares, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, which, if exercised, would give NetPower an additional 225 million of cash.
Akash Patel: 2.9 million shares subject to earnouts or vesting requirements and approximately 12.4 million authorized shares issuable pursuant to the joint development agreement with Baker Hughes.
Akash Patel: For a detailed breakdown of our diluted share count, please refer to our annual and quarterly financials on file with the SEC.
Akash Patel: That concludes our prepared remarks.
Speaker Change: I'll now pass it back to the operator to open up the line for Q&A.
Speaker Change: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions.
Speaker Change: Our first questions come from the line of Leo Mariani with Roth. Please proceed with your questions.
Operator: Greetings. Welcome to the Net Power second quarter, 2024 earnings call. At this time, all participants are in a listen only mode.
Speaker Change: I'll see you in the next video.
Operator: The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero and your telephone keypad. As a reminder, this conference is being recorded.
Leo Mariani: Yeah, thanks.
Leo Mariani: Just a quick question. Wanted to follow up a little bit here on Project Permian. You spoke to this and your prepared, you know, remarks, but do you envision any change at all in timeline as a result of Zachary's financial issues? You mentioned there's going to be some, you know, deliverables on the feed side, you know, later this year, but as you look at the the overall timeline in the next year or two, do you not see any change? I mean, was there any...
Bryce Mendes: I would now like to turn the call over to Bryce Mendes, Director of Investor Relations. Please go ahead. Good morning, everyone, and welcome to Net Power's second quarter, 2024 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 second quarter of 2024, which can be found on our Investor Relations website, along with this presentation at ir.netpower.com.
Speaker Change: change in terms of staffing, you know, that were, that was being supplied, you know, to your project there? Can you speak a little more detail about that? That'd be great.
Speaker Change: Yeah, Danny, I'll take that. This is Brian.
Brian Allen: Yeah, so there's been no impact to the feed, you know, the whole time this was going on. You know, we're actually embedded in their office with our project team.
Bryce Mendes: 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 new obligations to update any forward looking statements.
Speaker Change: no change to staffing, no change at all. So really.
Speaker Change: Again, we're not in the EPC phase yet, so it's really mainly engineering taking place. But our meeting was really more about forward-looking, ability to contract the subcontractors, ability to make the purchases, ability to attract the staff in that future phase.
Danny Rice: With that, I will now pass it over to Danny Rice, Net Power's Chief Executive Officer. Thanks, Bryce, and thanks everybody for joining us today. On the call, we'll refer in several slides from our Q2 presentation, and we encourage you to have it handy.
Speaker Change: And that's fully in place. So, yeah, no change in schedule, no slip of any sort, and the feed has progressed per the original schedule.
Danny Rice: It was a productive quarter for the Net Power team. It's routine to make steady progress across our three strategic pillars and our 2024 milestones. As we've mentioned on previous calls, we're focused on several key initiatives. First and foremost, is commercializing improving our clean power technology at the utility scale. Our first utility scale plant remains on schedule for startup between the back half of 2027 and first half of 2028. To ensure our first plant performs designed this fall, Baker Hughes, and Net Power will commence the first phase of a rigorous turbo-expandor equipment validation program at our report demonstration facility.
Speaker Change: Okay, now that's helpful. I wanted to jump over to OP1, you know, real quick here.
Speaker Change: So you mentioned that you guys have a sequestration partner lined up for that. I was hoping that you could provide a little bit more detail around that.
Speaker Change: in terms of who that might be. And then I guess just additionally, where are you guys in the process of maybe kind of selecting the right customer for that project?
Speaker Change: Yeah, this is Danny and good to hear from you. Yeah, I think I'm Without getting too deep in the weeds on specifics of who the partner is You know I think one of the things is we've started to dive deep into just the these origination projects lining up
Danny Rice: Second, we're building out our project backlog through our origination efforts across competitive power markets in the US and Canada. These originated projects were originally intended to accelerate early plant deployment after share on the bull and come down line. But as we've seen over the last year or two, the US is entering a period of meaningful load growth that remains well-short of new affordable, clean, firm power resources. And the market opportunity for Net Power plants to meet this load growth is something our origination team is actively showing.
Danny Rice: And third, we're sending up our strategic supply chain partnerships to ensure we have the ability to deploy dozens of these plants per year by the early part of next phase to meet the growing demand for clean firm power.
Speaker Change: both partners on the power side, but then also on the subsurface side. You know, I think one of the things that I think everybody in this space is seeing is on the subsurface side, you're really looking at
Speaker Change: the traditional energy industry folks with that subject matter expertise, so traditional oil and gas companies.
Speaker Change: that are very, very familiar with.
Speaker Change: just understanding geology, but I think more importantly is you get into, whether it's in northern Miso, southern Miso, Erkot, Kiso, there's subject matter expertise across just local geologies in each of these areas, and so it's really finding partners that have deep experience.
Danny Rice: Let me spend a couple of minutes on the macro and our competitive positioning before turning it over to Brian and Akash for the operational incremental updates. For the first time in a long time, we're seeing around the clock load growth, primarily from continued electrification of everything in new demands from things like data centers. We believe clean 24-7 firm power solutions like ours will make a break the world's ability to achieve its energy needs economically without compromising its environmental goals, and as we sit here today and assess the competitive landscape, we continue to see data points in anecdotal evidence that we're designing the most cost effective clean power solution in the world.
Speaker Change: not just with the ROC, but also with being able to work with the permitting agencies, with the states, with the local communities. And so...
Speaker Change: with this Northern Mesa project. It's not a company that's from outside the Basin. It's one that's been in the Basin for a while now, which certainly gives us...
Speaker Change: a little bit of a leg up in really understanding just both the regulatory process.
Speaker Change: But also, to the point I made earlier, on engaging with the local communities and local stakeholders.
Danny Rice: Given the IP mode, we've built around this business, and the decade or so the team is important to developing and refining our clean power plant, we think we should have a meaningful head start through 2040. The supply chain constraints facing the entire power industry, carbon emitting or not, is shifting the markets focused to 28 to 2030 and beyond, which bodes well for us to capture this demand as we scale into full scale manufacturing mode shortly after our first plant is all mine.
Speaker Change: It really is a huge advantage as you look at just being able to build that social network there. So things are progressing nicely there. And then happy to...
Speaker Change: I can hear that second question again if you want some color there.
Speaker Change: Yeah, no, that was very helpful in terms of, you know, the color around the sequestration partner. I was just curious as to kind of where your conversations are with a potential power partner.
Danny Rice: In terms of our competitive positioning, we've still seen that power is the most economical clean firm solution. For the first time ever, load growth to 24.7 power means that levelized cost of energy or LCOA must be assessed on a 24.7 365 basis, and we believe our solution will be more economic than new nuclear renewables with long duration energy battery storage, renewables with gas speakers, and gas plants with post-combustion carbon capture. Our early plants will be our most expensive, and for these we're targeting geographies with the most favorable economics.
Speaker Change: You know, I don't know if you'd maybe kind of, you know, narrow down some options, I mean, you know, are you...
Speaker Change: maybe started with a wider funnel and talked to a bunch of folks, and now you've got it narrowed down to a handful of partners. Just trying to get a high-level sense of where you are with potential customer engagement on OP1.
Speaker Change: Yeah, the power piece is such an interesting one because I think when when we originally started getting into
Speaker Change: the origination space.
Speaker Change: We sort of just assumed that the most logical place to sell this power is into the local merchant markets or under a long-term PPA, but all that's really done through
Danny Rice: Excellence, park spreads, low cost, just a quest to the CO2, and robust government incentives. Regions like MISO, Alberta, and certain parts of our cost fit the bill. That said, we believe our first plant, which will likely be the most expensive one we ever built, will still be highly competitive with any of the clean firm power alternative. That's a very profound and important starting point, and as we step into manufacturing mode, we are targeting an LCOE of $60 per megawatt dollar in many places across North America, which we think unlocks an obtainable market of 800 to 1000 net power plants.
Speaker Change: a utility that would become a partner.
Speaker Change: of ours in our origination projects. And I think one of the benefits of us doing origination, it gives us total creative latitude.
Speaker Change: over how do we commercialize this, how do we structure each of these, you know, for all intents and purposes SPVs that we put around, you know, special-purpose vehicles that we put around each of these net power clean energy hubs.
Speaker Change: And so we kind of have total latitude over who do we want to partner with. Is it going to be the traditional utility folks in a given region? Is it going to be bringing in infrastructure capital? And we stand up the team or partner with somebody on the actual operation of the plant.
Danny Rice: This $60 includes the 45-q benefit, which amounts to approximately $20 per megawatt hour. On an unsubsidized basis, we're targeting $80 per megawatt hour or less. Today, average US power prices are approaching $60 per megawatt hour, with unprecedented load growth coming on the pike. With those sufficient generation capacity being added, we think grid reliability becomes compromised in power prices move higher. Neither of those are great outcomes for consumers, people, and small businesses alike, and we're seeing more tangible evidence across the US of the consequences of underinvestment in large-scale firm capacity.
Speaker Change: I would say kind of sitting where we are today, it really varies from region to region.
Speaker Change: And I think the new thing that's really just popped up that I think everybody's talked about ad nauseum at this point is...
Speaker Change: just the load growth and just power demand that you're seeing from just new sources of generation.
Speaker Change: and this is really data centers that I'm talking about that have just this insatiable appetite for as much clean, firm power as they can get their hands on. And obviously clean, firm power is in very, very just short supply today and certainly going forward to meet their needs.
Speaker Change: For us, I think what we've begun to see is it creates really, really unique opportunities for us to be able to underwrite the plant with these long-term fixed-price PPAs.
Danny Rice: Just two weeks ago, PJM's capacity auction, for example, for 2025 to 2026, experienced major shortfall in reliable power bidding, resulting in a 9x spike in capacity prices to over $280 per megawatt per day. The highest capacity prices PJM has ever seen. This comes on the heels of PGM and other system operators reliability reports indicating there's more load growth than firm capacity being added. All to say, the results of the PGM auctions aren't a surprise to those following the space, but what is surprising is a disproportionate amount of resources in capital, bent performing triage instead of addressing the underlying problem.
Speaker Change: at really healthy prices if you can put these plants in the right area, right? And so certainly this first origination project being in northern Miso is one of those targeted areas.
Speaker Change: for folks looking to procure power on either on a physical basis, so co-location behind the meter.
Speaker Change: with NetPowerPlant.
Speaker Change: but also as a bridge until you can establish these permanent behind-the-meter solutions.
Speaker Change: virtual PPAs.
Danny Rice: We also don't think that forward prices properly reflect the marginal cost of new capacity to meet base load demand growth. For new combined cycle gas plants, for example, we're hearing through the market costs in the $1,500 to $2,000 per kilowatt range, which is nearly two times the cost of a new gas plant compared to several years ago. That's consistent with what we've been seeing on our side. All to say, inflation across the traditional generation sector really narrows the economic gap between a carbon-emitting plant and a clean net power plant.
Speaker Change: So they're just buying that power within the grid system and then allocating it to their designated data center or just designated load growth.
Speaker Change: Long way of saying is, you know, we have a lot of options with with what we do with OP1's power, but it's really nice to see a lot more options and a lot more flexibility starting to pop up than we expected even 12 months ago.
Speaker Change: Okay, appreciate it.
Speaker Change: Thank you. Our next questions come from the line of Thomas Merrick with Jannie Montgomery Scott. Please proceed with your questions.
Danny Rice: Carbon intensity wise, the U.S, grid today is around 370 grams per kilowatt hour. Net power is 40 to 75 grams per kilowatt hour. We comply with the EPA's proposed section 111 B&D rules and installing net power from here and out in the U.S, would be a 75% reduction in U.S, power emissions while improving grid reliability and ensuring power prices not much higher than where they are today. Just giving the under-investment and firm resources of the last 5 to 10 years, there's a lot of capital and attention on batteries, which is more triage for grid reliability than it is a sustainable low-cost solution.
Thomas Merrick: Good morning gentlemen, thanks for taking the time. A couple for me on baker supply, just kind of thinking...
Speaker Change: through gas turbine demand globally, not just for net-powered turbines, but
Speaker Change: to build out a peaker plant, etc. How do you think about the surety of your turbine supply with Baker in this growing demand environment?
Speaker Change: Is there room to expand that capacity and just kind of walk us through some of the color around the supply agreement to the extent that you can? Thanks.
Speaker Change: Sure, Thomas. This is Brian.
Danny Rice: Batteries are inherently very expensive at over $200 per megawatt hour, but by further reducing the economic uptime that a new 24-7 power plant needs to justify being built, batteries only make this problem worse. And if the end goal is clean, reliable, affordable power, net power is far and away a better, more complete solution. But absent a total shift across policy, capital markets, and market demand, we don't see firm 24-7 resources being added fast enough, and we think power prices should be moving much higher.
Speaker Change: And I think I addressed this a little last time, certainly they're seeing, yeah, Baker's seeing the pressure
Speaker Change: From the aviation industry, coming out of COVID, you know, you have a significant amount of airplane and jet engine orders, which, you know, compete for a similar supply chain.
Speaker Change: And then, of course, the PowerGen itself picking up.
Speaker Change: But overall, that's a much smaller percent of just the total supply chain for things like foragings and castings.
Speaker Change: that make up the components within the turbine.
Speaker Change: You know, look, we have a commercial committee partnership with Baker. We're looking at long-term.
Danny Rice: This in turn will only mean that our plants are more economic, thus supporting our commercial strategy to lead with the origination and set the table for future deployments where our clean, firm power plants can generate highly economic returns to the power plant owners while delivering lower-cost power than prevailing market prices. On the origination fund, we continue to make significant progress across North American markets.
Speaker Change: forecasting and this is their business, right? They make sure as we go through the design that they're not sole sourcing.
Speaker Change: individual subsuppliers. This is what they do day in day out. So we're confident having worked with them on the subsupply chain that they're securing, that they're leaving themselves options, that we're not designing something that let's say trends off into one-of-a-kind type
Danny Rice: Slide 7 highlights the regions were spending a lot of our time originating future projects. As I've mentioned in the past, there are three main criteria to screen to ensure a net power plant success. First is access to natural gas. Second is a market or designated market for the power. And third is ample CO2 storage, whether it's through permanent sequestration or enhanced oil recovery. Now there are multiple regions across North America that check these three boxes in addition to having supportive policies that further enhance the economic attractiveness of these prospective plants.
Speaker Change: you know, design, material, sub-suppliers.
Speaker Change: yeah so it's really just enhancing who they already work with it's a similar supply chain and yeah we're confident in what they're building out right now
Speaker Change: Thank you.
Speaker Change: Great, thank you.
Speaker Change: And then, Danny, kind of on the heels of Leo's question on OP1, I just wanted to ask kind of the same question in a different way, but is there any change to your strategy for monetizing originative projects as it relates to...
Danny Rice: As we've mentioned before, there are approximately 22 states in the U.S, plus several provinces in Western Canada that contain sedimentary rocks for geologic sequestration. Most of these territories happen to be in competitive power markets, which is where we're focusing most of our origination efforts today, and you can see on this slide where our team is focusing their efforts. One of the more interesting markets is Alberta, which has the right elements for success, and we believe could be one of the most attractive places in the world for us to establish some large-scale net power clean energy hubs.
Speaker Change: PJM Capacity Clear, MISO Capacity Reform, you know, all of these things that have generally tightened the market for clean, firm power. Just curious if you still expect...
Speaker Change: that the vast majority of OP projects will be kind of monetized via, you know, promote or a sale or if there's an opportunity for you to operate them yourself.
Speaker Change: Wham!
Speaker Change: Yeah.
Speaker Change: We talk about that all the time, like, do we get into the operator game, and I think...
Danny Rice: We're currently in the project feasibility phase of the origination timeline here, which includes conducting site-specific studies where the first partner in the region, commencement of a region-specific plant design, and initiating regulatory dialogue at both the provincial and federal levels. We're really excited about the Alberta market and look forward to sharing our progress to and forward. Bill Swear, our Northern MISO project is progressing well. As a reminder, we filed our MISO Interconnect Application in the second quarter of 2024. Additionally, our sequestration partner has filed for its Class 6 CO2 sequestration permit, and with these items underway, we've begun the first phase of stakeholder engagement at the local state levels.
Speaker Change: kind of sitting here today, we don't necessarily think we need to internalize that skill set. Certainly, we're sitting in a unique position where...
Speaker Change: of this plant better than us. And so it's certainly a skill set that we have a head start on everybody with.
Speaker Change: But I think it really comes back down to what's going to enable us to be able to scale this thing as quickly as possible? Is that going to be a responsibility that we can outsource to other folks?
Speaker Change: I think as we look at origination, our original goal was, look, origination for us is going to be a way to catalyze us into full-scale manufacturing mode. And I think it's just a reminder for everybody, the goal was originally, look, let's build a shadow backlog of
Danny Rice: On the final note before turning over to Brian, I'm excited to announce that Net Power officially opened its TSN Office in July. We look forward to continuing to go to that power team down in Houston, which has long served as an epicenter for energy industry talent.
Speaker Change: 30 to 40 net power projects.
Brian Allen: I'll now hand it over to Brian to give an operational update. Thanks, Annie. Turning the slide 9 in the presentation, as we have mentioned in previous calls, the upcoming testing campaigns that before will focus on validating and de-risking the Baker Hughes utility-scale turbo-expander and optimizing its operation within our cycle. The campaigns will follow four primary phases and will continue through 2026. We've added the expected timing for each of the four phases on the right-hand side of this slide.
Speaker Change: that we kind of have teed up, you know, going through the requisite grid and subsurface permits for the first 30 to 40 plants by the time the first one comes online at the end of 2027. And then that'll really be the thing that catalyzes us into manufacturing mode and allows us to come down that CAPEX curve.
Speaker Change: You know, we can take our CapEx from a billion, 1.1 billion down towards that 700 that we're targeting long-term.
Speaker Change: You know, we're kind of sitting here today.
Speaker Change: looking at just...
Brian Allen: The first phase of testing, which will result in combustor burner down selection, is on schedule to begin in the fourth quarter of this year. The second phase is expected to begin in 2025, and will take the selected oxyfuel burner from phase 1 and test it alongside a combustion liner and other hardware to form a single demonstrator-sized combustion can. The third phase of testing is expected to begin in late 2025 or early 2026, and will involve scaling the demonstrator-sized combustor can from phase 2 to utility-scale can with clusters of burners and then testing it with the goal of learning and optimizing the design of the utility-scale combustor that will operate a project permeant and beyond. Finally, the fourth phase is expected to start in 2026 and will test the full demonstrator turbo-expander, including the validation of materials and design architecture to be used on the turbo-expander for project permeant.
Speaker Change: the interconnect queues, looking at the load growth that's coming, looking at the higher values that are now being ascribed.
Speaker Change: to firm power, and it shows up in things like just the capacity markets, like what you saw in PJM.
Speaker Change: And so you're starting to see there's major scarcity and just new firm capacity being added.
Speaker Change: You know, it's really hard to contract just any type of firm capacity under a long-term PPA. But if you have clean firm capacity, that is highly, highly valuable to a whole lot of potential strategic buyers on a long-term basis.
Speaker Change: And so what that enables us to do is essentially underwrite a lot of the CAPEX, if not the entirety of the CAPEX of these plants with these long-term PPAs, coupled with...
Speaker Change: the benefit of the 45Q, which is essentially a 12-year fixed price PPA with inflation escalators in it. So it gets you to this really unique place where you can actually underwrite the full returns of the plant on a fully contracted basis. And that's
Speaker Change: a really unique, really powerful place to be. And so I think when you couple just kind of...
Brian Allen: Turning to slide 10, the team continues to make steady progress on site upgrades to our report demonstration facility in preparation for our upcoming equipment validation with Baker Hughes. To support Baker's combustor test requirements, we have added additional natural gas, oxygen, and CO2 piping that run to our combustor test rig building, which will host Baker's combustor test rig. Based on lessons learned from NetPower's previous report testing, we have installed upgraded flow measurement and other instrumentation to enhance our data acquisition that will ultimately help us improve our utility-scale control system.
Speaker Change: Those underwritten economics along with just the magnitude of load that's going to be coming to these grid systems
Speaker Change: I think what it's really forcing us to do on the origination side is shifting to these larger scale developments because, you know, while each of our modules at 250, you know, 300 megawatts is fairly sizable.
Speaker Change: The load growth that's coming is, you know, in the magnitude of tens of gigawatts per year. And so for us, it really lends itself to these fleet deployments. And so that's one of the things that us and the team really started to think about is fleet deployments, you know, two to four net power plants.
Speaker Change: per pack. And so, that's ultimately one of the ways that we're gonna be able to drive that CAPEX down even further. And so, you know, origination for us.
Brian Allen: We continue to bolster NetPower's engineering team and our partner constellation site operation staff. The head of the phase one equipment validation set the start in the fourth quarter of this year. The Baker Hughes combustor test rig is shown on the right hand side of slide 10. It is currently located at Baker's Florence facility and is expected to ship in to the port in Q3. Due to the plant upgrades we are making, we can vary the pressure, temperature, and flow of the CO2, oxygen, and natural gas that eat the combustor test rig to simulate the range of operation operating conditions that Baker expects to see in the actual turbo-stay.
Brian Allen: Reader. Phase one testing will commence in Q4, beginning with ignition testing, and ending when we and Baker have operated each of the candidate burners through a full range of operational mapping and have made a final down selection. Phase two will begin next year using the selected burner and will test a Laporte size combustor can.
Speaker Change: could transcend beyond just catalyzing us into manufacturing mode and really being a core staple of the business of NetPower, developing that expertise of being able to pair the power markets with the subsurface markets.
Speaker Change: to create this really, really economic project. So I think it's still an evolution in terms of where we ultimately end up, but I think everything that we're seeing on the macro side are certainly tailwinds that will just continue to support the efforts that we're putting into the origination bucket.
Brian Allen: And I think just the last thing on that is we just don't see a lot of new firm baseload showing up into these queues, I think, you know, to Brian's point and to Thomas' question earlier.
Brian Allen: Like, these supply chains are fairly constrained across the entire generation industry.
Speaker Change: You know, we've been seeing it over the last couple of years is we've had to push back the COD data of serial number one.
Brian Allen: Next I will turn to slide 11 for the update on Project Permian. The project remains on schedule with initial power generation expected to occur between the second half of 2027 and first half of 2028. During the second quarter of 2024, we signed a limited notice to proceed with Baker Hughes for the release of all long lead material required to maintain an on schedule delivery of the utility scale turbospanter to Project Permian.
Speaker Change: and we're starting to see first-hand that it's not just us that's experiencing it, it's everybody else in the market.
Speaker Change: I think all to say, you know, is the market really starts to shift load growth because of capacity constraints.
Speaker Change: into the back half of this decade, the beginning of next. It really sets us up as we enter full-scale manufacturing mode to be able to capture when that demand is really going to be there.
Speaker Change: All very helpful. Thank you. I'll turn it back.
Brian Allen: Our key upcoming 2024 milestones are highlighted on the right hand side of the slide. We are advancing our front end engineering design or fee with Zachary Group. We recently met with John Zachary and his leadership team to discuss the quarter proof settlement between his company and the Golden Pass LNG project. We have a constructive dialogue and are pleased that we will continue the same EPC contracting approach we initially envisioned when we started the feed.
Speaker Change: Thank you. Our next question has come from the line of Wade Suki with Capital One. Please proceed with your questions.
Wade Suki: Good morning, everyone. Thank you all for taking my questions.
Speaker Change: I'm going to go ahead and close the call. Thank you.
Speaker Change: I think last quarter, just to follow up, I believe on Leo's question earlier, I think last quarter, you all mentioned that there might be another project that potentially sort of slots in ahead of.
Speaker Change: this OP-1 as we know it today. I mean, considering the MISO and Class 6 filings, is that still possible? Or are we sort of at the point of...
Brian Allen: Zachary continues the feed engineering to firm up equipment quotes and optimize the plant layout. We have had several collaborative value engineering sessions to optimize the piping design and reduce the amount of CO2 volume in the system and reduce the quantity and cost of high pressure pipe. Zachary will deliver their feed estimate and schedule expected in queue for this year. To maintain the project schedule, we will continue to order long lead components throughout 2024.
Speaker Change: more certainty. And then just in terms of timing, it's still fair to think of OP-1 starting up within a couple of years of Project Permian.
Wade Suki: Yeah, hey Wade.
Wade Suki: Yeah, the way we kind of think about it with Origination, and the reason why Origination just gives us total flexibility is because these are our projects. And until we've brought in strategic partners on the equity side, on the debt side, on the off-take side, we kind of have like total flexibility around slotting order, around just sequencing of these plants.
Brian Allen: We and Zachary are finalizing purchases for other long leads that have been identified, including 345 KV circuit breakers, a generator step-up transformer, a unit auxiliary transformer, and an air separation unit transformer. Other items may be added to this list as necessary to ensure we preserve the project Permian schedule.
Wade Suki: So, certainly, like, OP1's kind of ahead of these other originated projects because we're already going through the permitting, we already have site control, all of those things for this to be an actionable project.
Wade Suki: But I think we've kind of always said, you know, we're going to try to develop the most economic projects first. And so, as we're kind of looking at opportunities in some of these other regions, there's definitely the opportunity that some of these other things could slot in ahead of it.
Brian Allen: Additionally, we recently finalized our ASU pre-feed and have begun our ASU feed with a standard 2 x 50% ASU plant configuration. So instead of a single large ASU unit supplying all of our required oxygen, there will be two smaller ASUs that will together account for the full oxygen input requirements for the plant. The two smaller ASUs have better operating flexibility to support our various power plant operating modes, including ramping up and down to support grid requirements and optimizing liquid oxygen storage to serve as our backup oxygen supply and long duration power storage.
Wade Suki: If the timing works out and if the permitting and everything falls into place, and I think one of those markets
Speaker Change: that could surprise people is probably going to be the Alberta market. It's probably the most economic place in the world to develop a net project, a net power project.
Speaker Change: principally because of the ITC credits you have at the federal level and at the provincial level within Alberta, a favorable carbon tax pricing regime.
Brian Allen: This ASU configuration decision was carefully made considering the trade-off of many factors and ensure success for both project Permian and other future projects. Many of our target customer geographies are located inland away from major ports and waterways, so this decision will better support truckable module shipping to a diverse range of customer project sites. This 2 x 50% configuration is also a better fit within ASU providers standard product offerings and should support modularization and a broader set of competition amongst their sub-dipliers for equipment like compressors and heat exchange.
Speaker Change: And, you know, Alberta's been highly successful in being able to permanently sequester CO2 through a lot of, like, really nice geologic formations.
Speaker Change: over the course of the last few years.
Speaker Change: That's a really unique market where we're pretty advanced on a couple things up there in Alberta right now. And that becomes one of those markets that could leapfrog what we're doing up in the Miso area. But I think at the end of the day, what we're really thinking of is after this first plant comes online.
Speaker Change: at the end of 2027, we're quickly ramping into full-scale manufacturing mode. And the goal isn't to deploy just one or two plants per year, but it's to scale into being able to deploy dozens of these plants.
Akash Patel: with that I'll pass it off to Akash for the financial updates. Thanks, Brian. Net Power continues to prudently deploy our capital, ending the second quarter of 2024 with a strong balance sheet, including approximately 609 million of cash and investments. Consisting with the past several quarters, the current interest rate environment has allowed us to put our balance sheet cash to work to offset our corporate spent. In the second quarter, our cash flow using operations worth approximately 8 million dollars, which include a cash payment of more than 3 million under the Baker Hughes JDA.
Speaker Change: whether it's serial number 2 or serial number 3 or serial number 10.
Speaker Change: You know, the expectation is we'll be able to have that backlog of originated projects that we're starting to build that queue of right now.
Speaker Change: We'll have those deployed before the early part of next decade.
Speaker Change: We're really excited about being able to have just total optionality over which project we slot as serial number 2, serial number 3, serial number 4, but I think we're going to have probably another year or 18 months before we really need to put a fork in what plant is going to be serial number 2.
Akash Patel: We expect cash flow using operations to continue increasing as we build up the organization, progress the joint development program with Baker Hughes, and ramp up activity at LaPort. For the quarter, our total capital expenditures were approximately 8 million, comprised of approximately 4 million of capitalized costs associated with the ongoing project per million development activities, and approximately 4 million spent on the port modifications and upgrades I had a testing that was expected to begin in the fourth quarter of this year.
Speaker Change: Fantastic. I appreciate that. Great detail. You kind of led into my second question on Alberta. Sounds like a very attractive market developing up there for you all. Any hints you can give us? I think I heard you say you have secured a partner already up there. Did I hear you correctly? And any color you can give on that would be fantastic.
Speaker Change: E-E-E-E
Speaker Change: Yeah, no, we're working with a few firms up there that have really great access to natural gas, really great places to be able to store this CO2.
Akash Patel: Net Power's fully diluted share time was approximately 249 million shares as of June 30. This was comprised of approximately 214 million class A and B invested shares, 19 and a half million shares issued below upon the exercise of outstanding public and private warrants, which if exercise would give Net Power an additional 225 million of cash, 2.9 million shares subject to earnouts or investing requirements, and approximately 12.4 million authorized shares issued below pursuant to the joint development agreement with Baker Hughes. For a detailed breakdown of our diluted share count, please refer to our annual and quarterly financials on file with PSCC.
Speaker Change: You know, I think, as we're seeing across most of these places, the power piece is probably the easiest one to solve, considering, like,
Speaker Change: Just about every single power market is short, firm, clean capacity.
Speaker Change: and everybody's really scrambling to figure out ways to be able to procure that sort of generation capacity. So the power piece is probably the easiest.
Speaker Change: of the variables to be able to sell for. The key things are really being able to figure out, how am I going to get access to the lowest cost gas I can? How can I get as close to the CO2 sink as possible to really minimize the CO2 transportation and sequestration costs?
Akash Patel: That concludes our prepared remarks.
Operator: I'll now pass it back to the operator to open up the line for Q&A. Thank you.
Speaker Change: And so, in Alberta, just like within any other place in the U.S. or really any other place in the world.
Operator: We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star two to remove yourself from the queue. The participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for your questions.
Speaker Change: where these plants make really good economic sense.
Speaker Change: You're typically going to be partnering with the oil and gas industry, especially on the gas procurement and CO2 sequestration side, so we're working with a couple of folks.
Speaker Change: really close on opportunities up there, and certainly as those ones evolve and become announced, we'll definitely share with you guys more details.
Leo Mariani: Our first questions come from the line of Leo Mariani with Roth.
Speaker Change: all to say, you know, Alberta's a really interesting one for a lot of the same reasons why some of these markets in the U.S. are really exciting to us as well.
Brian Allen: Please proceed with your questions. Yes, thanks. Just a quick question. I wanted to follow up a little bit here on Project Permian. You spoke to this and you're prepared remarks, but do you envision any change at all in timeline as a result of Zachary's financial issues? You mentioned there are going to be some diluted rolls on the feed side later this year, but as you look at the overall timeline, in the next year or two, do you not see any change? Was there any change in terms of staffing that was being supplied to your project there? Can you speak a little more to each other? That'd be great.
Speaker Change: Great. That's fantastic, Collar. Thanks so much. Look forward to seeing you guys next month.
Speaker Change: Thanks, guys.
Speaker Change: Thank you. Our next questions come from the line of Martin Molloy with Johnson Rice. Please proceed with your question.
Martin Molloy: Good morning. I was wondering if you could maybe give us an update on your approach to financing the Project Permian plant and, you know, any update as far as DOE potential funding, timeline, etc.
Martin Molloy: Hey Marty, thanks for the question. This is Akash.
Martin Molloy: You know we've said this on previous quarters, so we're waiting for there's a lot of things that have to Get a line before you announce that the final financing package for the first plant
Leo Mariani: Yeah, Danny, I'll take that. This is Brian. There's been no impact to the feed. The whole time this was going on. We're actually embedded in their office with our project team. No change to staffing. No change at all. Again, we're not in the EPC phase yet, so it's really mainly engineering taking place, but our meeting was really more about forward-looking ability to contract the subcontractor's ability to make the purchases, ability to attract the staff in that future phase, and that's fully in place. No change in schedule, no slip of any sort, and the feed is progressed per the original schedule.
Leo Mariani: Thank you so much. Okay, now that's helpful.
Speaker Change: We're going through feed now. On the end of feed in QCOR, we'll get an open book estimate, so we'll have the firm CapEx number, and that really will allow us to know the actual specific returns of the plant based on supply offtake, etc., that we're currently in discussions with in West Texas.
Speaker Change: We are the first $200 million into the plan, we've announced that right now, of our $600 plus million in cash.
Speaker Change: We're going to be the first 200 into the plant, and then we're working on the financing strategy with our existing owner group, led by Oxy and Baker and Constellation for how we approach the rest of the capital.
Danny Rice: I wanted to jump over to OP1 real quick here. So, you mentioned that you guys have a sequestration partner lined up for that. I was hoping that you could provide a little bit more detail around that. You know, in terms of, you know, who that might be. And then I guess just additionally, where are you guys in the process of maybe kind of, you know, selecting, you know, the right, you know, customer for that project.
Speaker Change: for that. We also have said that the first plan we're approaching
Speaker Change: this as.
Speaker Change: fully equity funded at the project level. Now if there's opportunities for us to get either federal or state level capital we are we are evaluating that.
Speaker Change: The DOE program for the LPO, I think we're more thinking about that as potentially a really good, strong opportunity for anything in serial number two plus, like in MISO.
Danny Rice: Leo, this is Danny. Good to hear from you. Yeah, I think without getting too deep in the weeks on specifics of who the partner is. You know, I think one of the things is we've started to dive deep into just these origination projects lining up both partners on the power side, but then also on the subsurface side. You know, I think one of the things that I think everybody in this space is seeing is on the subsurface side, you're really looking at the traditional energy industry folks with that subject matter expertise, so traditional oil and gas companies that are very, very familiar with just understanding geology, but I think more importantly is you get into whether it's in northern miceau, southern miceau or kaisau.
Speaker Change: And then, you know, there's other things within Texas that we're also constantly evaluating, including the Texas Energy Fund.
Speaker Change: But as of now, we're assuming that it's fully equity funded.
Speaker Change: Great. And for my follow-up question, I wanted to ask about Brownfield site opportunities. Are you seeing any opportunities there to maybe accelerate originated projects?
Speaker Change: Yeah, definitely, you know, I think...
Speaker Change: Greenfield, Brownfield, so Brownfield are just existing sites for the listeners that haven't heard that term before.
Speaker Change: Um, um, [inaudible]
Speaker Change: And so I think, yeah, brownfield sites are really interesting to us for several reasons. One, they already have existing interconnects. And so really what you're doing is we'd really just be repowering those existing interconnects.
Danny Rice: There's subject matter expertise across just local geologies in each of these areas. And so it's really finding partners that has deep experience not just with the rock, but also with being able to work with the permanent agencies with the states with the local communities. And so, you know, with this northern miceau project, it's not a company that's from outside the basin. It's one that's been in the basin for a while now, which certainly gives us a little bit of a leg up in really understanding just the regulatory process.
Danny Rice: But also to the point of later on engaging with the local communities and local stakeholders, it really is a huge advantage is you look at just being able to build that social network there. So thanks for progressing nicely there. And then happy that happy to hear that second question again if you want some color there. Yeah, now that was very helpful in terms of the color around the sequestration partner was just curious as to kind of where your conversations are with a potential power partner.
Speaker Change: I think if you look at just like the thermal power industry
Speaker Change: over the last 10-15 years, you've seen capacity rates on a lot of these baseload plants go from them serving as baseload 80-90% capacity factors
Speaker Change: Now they're trending down towards 50-60% on average, and a lot of them have just been fully relegated to peakers, where they're operating 10-20% of the time.
Speaker Change: and really just serving as a backup to the grid.
Speaker Change: when they're needed. And so those are those are sites with interconnects that are highly underutilized and so it becomes really unique opportunities for us and so that's that's part of our screening assessment is you know for origination is are there brownfield opportunities.
Speaker Change: And so yeah, no, it's it's definitely in the works. They're definitely interesting I would say you know if we were trying to get a net power plant
Speaker Change: on in the next two years. Brownfield sites become really, really interesting to us.
Danny Rice: I don't know if you may be kind of narrow down some options. I mean, are you maybe started with a wider funnel and talk to a bunch of folks and now you've got a narrow down to a handful of partners just trying to get a high level sense of where you are with potential customer engagement on OP one. Yeah, the power piece is such an interesting one because I think when we originally started getting into the origination space, we sort of just assumed the most logical place to sell this power is into the local merchant markets are under a long term ppa, but all that's really done through a utility that would become a partner of ours in our origination projects.
Speaker Change: but the fact that we're talking about projects in 29, 2030, and beyond. The brownfield sites...
Speaker Change: aren't as valuable to us as they might be to somebody that's trying to do something with it within the next year or two.
Speaker Change: But I would say, you know, when we look at just the size of generation that you can generate from our footprint, which is a lot, our plant is highly, highly dense. You know, we're talking about 15 to 20 acres for each of these blocks. And so if you're talking about four net power plants.
Speaker Change: For a gigawatt, you know, we only need 80 acres
Speaker Change: And so just the siting requirements for us are much smaller than they are for any other real new thermal power plant today.
Danny Rice: And I think one of the benefits of a bus doing origination it gives us total creative latitude over how do we commercialize this, how do we structure each of these, you know, for all intensive purposes, SPVs that we put around, you know, special purpose vehicles that we put around each of these net power clean energy hubs. And so we kind of have total attitude over who do we want to partner with is it going to be the traditional utility folks in a given region is it going to be bringing infrastructure capital.
Speaker Change: And so we can fit into existing spaces.
Speaker Change: And so, as we look at just some of these prime field sites...
Speaker Change: We don't think you'll necessarily need to take away the existing plant that's there. We can actually co-locate and essentially repower without having to get rid of the existing power plant. So it creates really unique opportunities just given the dense footprint we have.
Danny Rice: And we stand up this team or partner with somebody on the actual operation of the plants, I would say kind of sitting where we are today, it really varies from region to region. And I think the new thing that's really just popped up that I think everybody's talked about at Nazim at this point is just the load grows and just power demand that you're seeing from just new sources of generation that, you know, this is really data centers that I'm talking about that have just this insatiable appetite for as much clean from power is they can get their hands on and obviously clean from powers and very, very just short supply today and certainly going forward to meet their needs.
Speaker Change: and certainly just those brownfield sites become interesting opportunities for us. But again, it all gets back to because we're really trying to optimize for the lowest cost source of power we can.
Speaker Change: being as close to the sink and as close to the natural gas.
Speaker Change: are two of the more important features that really drive total project economics for the cost of electricity. So those are the two driving things, and then certainly being on a brownfield site is...
Speaker Change: is important, but I wouldn't say it's necessarily, you know, in the top three or four things that we're looking at as we screen for the best place to put these plants.
Danny Rice: And so for us, I think what we've begun to see is it creates really, really unique opportunities for us to be able to underwrite the plants with these long term fixed price PPAs at really healthy prices. If you put these plants in the right area right and so certainly this first origination project being in northern my so is one of those targeted areas for folks looking to procure power on either on a physical basis, so co location behind the meter with a net power plant.
Speaker Change: Thank you. Very helpful. I'll turn it back.
Speaker Change: Thank you. Our next questions come from the line of Pavel Molchanov with Raymond James. Please proceed with your questions.
Pavel Molchanov: Yeah, thanks for taking the question. Nice to be on your call for the first time. You touched on...
Pavel Molchanov: permitting in some of your remarks.
Pavel Molchanov: You know, we've seen so many different infrastructure projects get delayed because of permitting over the last few years, you know, specifically in the US. Can you just talk about kind of how that
Danny Rice: But also as a bridge until you can establish these permanent behind the meter solutions, virtual PPAs so they're just buying that power within the grid system and then allocating it to their designated data center or just designated load growth. So one way of saying is, you know, we have a lot of options with what we do with OP1's power, but it's really nice to see a lot more options and a lot more flexibility starting to pop up then we expected even 12 months ago. Thank you.
Speaker Change: aspect of the roadmap is is going and do you envision any any delays on that trend?
Speaker Change: Yeah, Pavel, that's a great question. I think that's certainly one of the issues that I think the broader power industry has faced is looking at building a new transmission, new infrastructure.
Speaker Change: to be able to connect their generating assets.
Speaker Change: I would say the one thing that's unique, probably more unique about NetPower
Speaker Change: Well, there's a couple of things. First,
Thomas Meric: Our next questions come from the line of Thomas Meric with Janie Montgomery Scott. Please proceed with your questions. More than gentlemen, thanks for taking the time.
Speaker Change: We don't take up a lot of land. And I think if you look at just the transmission issues that you're seeing...
Speaker Change: specifically on the wind and solar side.
Speaker Change: Those folks need a lot of land to be able to build their generating facilities. You know, you're talking about thousands, tens of thousands of acres for each of those. And so they're having to build out in areas where they have enough land mass to be able to build their generating assets.
Thomas Meric: Couple for me on Baker supply, just kind of thinking through gas turbine demand globally, not just for Net Power turbines, but the build out of peak or plants, et cetera. How do you think about the surety of your turbine supply with Baker in this growing demand environment? And is there room to expand that capacity and just kind of walk us through some of the color around the supply agreement to the sense that you can.
Speaker Change: Which inevitably means in most cases they're having to build further from where the existing transmission lines are and they're having to lay new transmission lines
Speaker Change: Our situation is a little bit different where...
Speaker Change: we can find 20 to 100 acres close to existing transmission lines where there's not congestion on the system. And I think that's certainly part of just our screening assessment.
Thomas Meric: Thanks. Sure, Thomas is a friend. Yeah, I think I addressed this a little last time. Certainly they're seeing, you have Baker seeing the pressure from the aviation industry coming out of COVID. You have a significant amount of airplane and jet engine orders, which compete for a similar supply chain. And then of course the power gen itself picking up, but overall that's a much smaller percent of just the total supply chain for things like.
Speaker Change: as we look at where do we want to set up shop within these territories is really figuring out where is there not much congestion on the system that we can get into on the 100 acres or so.
Speaker Change: And that's certainly a screening thing that's really just afforded to our technology and not so to other forms of new clean generation.
Speaker Change: So there's that piece. So I think that's probably like the biggest one.
Thomas Meric: You know forging and castings and that make up the components within the turbine. You know, look, we have a commercial committee partnership with Baker, we're looking at long term forecasting and this is their business right they they make sure as we go through the design that they're not soul sourcing individual sub suppliers. This is what they do day in day out so we're confident having work with them on the sub supply chain that they're securing that they're leaving themselves options that we're not designing something that let's say trends off into one of a kind type. Designs material, sub suppliers. Yeah, so it's really just enhancing who they already work with. It's a similar supply chain and yeah, we're confident in what they're building out right now. Great, thank you.
Speaker Change: We're really trying to be as close to the existing grid as possible, and I think just given our small footprint enables us to do that. So we're really able to mitigate a lot of just the transmission extensions that have to happen for renewable forms of power.
Speaker Change: and then the other just real permitting consideration is really on the subsurface side on being able to permit.
Speaker Change: the CO2 infrastructure, both the wells and the pipelines, and again...
Speaker Change: We're really targeting being as close to the sink and as close to the grid as possible. And in an ideal scenario, we're right next to the grid interconnect and we're right on top of a sink. And that's certainly what we're doing on our project up in MISO.
Speaker Change: That's what we're doing for our first project in West Texas.
Speaker Change: And that's kind of how we're looking at things in Alberta and some of these other places as we go through these feasibility studies, is figuring out how can we be as close to the sink and as close to the grid as possible. Because not only is it good to shorten permitting times because we're not having to build massive new infrastructure that could take years and years.
Danny Rice: And then on the heels of the question on OP one just wanted to ask the kind of the same question in a different way, but is there any change your strategy for monetizing originated projects as it relates to. You know, PDM capacity clear my so capacity reform, you know, all of these things that have generally tightened to the market for clean firm power. Just curious if you still expect that the vast majority of OP projects will be monetized via, you know, promote or a sale or if there's an opportunity for you to operate them yourself.
Speaker Change: and is outside of our control, but it also reduces our CapEx as well, especially on the CO2 transportation side.
Speaker Change: The smaller that CO2 pipe is, the lower the capex is, and the higher the project returns are. So, all to say, like, all of this goes into just the assessment that we do.
Speaker Change: you know we're mindful of the delays that we're seeing across the industry and we're certainly being very very thoughtful about citing projects in areas where we're not going to see you know five to seven year transmission line delays.
Danny Rice: Yeah, we talk about that all the time. I was like, do we get into the operator game and I think kind of sitting here today, we don't necessarily think we need to internalize that skill set. Certainly we're sitting in a unique position where there's probably nobody in a world that understands this technology better than us because we're developing it. Nobody really understands the operability of this plant better than us. And so it's certainly a skill set that we have a head start on everybody with and I think it really comes back down to like what's going to enable us to be able to scale this thing as quickly as possible.
Speaker Change: Let me follow up on another aspect of sort of policy risk, so to speak, you know, 45 Q, obviously.
Speaker Change: got some benefits from the Inflation Reduction Act and 90 days out from the election, you know, there is some debate over whether the IRA will survive in its current form.
Speaker Change: If there was a second Trump administration, what's your thinking around that issue?
Speaker Change: You know, there's only so many things that we have control over, and who knows what any administration is going to do.
Danny Rice: It's not going to be a responsibility that we can outsource to other folks. I think as we look at origination, you know, our original goal was look, you know, origination for us is going to be a way to catalyze us into full skill manufacturing mode. And I think it's just a reminder for everybody, you know, the goal was originally look, let's build a shadow backlog of 30 to 40 net power projects that we kind of have teed up, you know, going through the requisite grid and subsurface permits for the first 30 to 40 plants by the time the first one comes online at the end of 2027.
Speaker Change: I would say if there's any single technology that can survive administrative changes, if the administrations do want to change things,
Speaker Change: I think the one thing that should survive is something like net power and something like the 45Q for sequestration, both because it helps us meet our energy needs.
Speaker Change: It helps us, it leverages the traditional oil and gas industry on being able to procure natural gas, being able to sequester the CO2, so that certainly satisfies
Speaker Change: one contingent. But then the other side is.
Danny Rice: And then that'll really be the thing that catalyzes us into many factory mode and allows us to come down that capex curve. You know, we can take our capex from a billion 1.1 billion down towards that 700 that we're targeting long term. You know, we're kind of sitting here today looking at just the interconnect cues looking at this load growth that's coming looking at the higher values that are now being ascribed to firm power.
Speaker Change: It helps us achieve our environmental goals as well. And so there's not a lot of solutions, not a lot of technologies out there that kind of cut across the aisles the way net power can, where it really helps us achieve both our energy goals.
Speaker Change: with affordable, reliable energy, while also at the same time
Speaker Change: helping us achieve our environmental goals.
Speaker Change: I think if there's one single technology that could survive all of this, if there was going to be change, it would be net power. And so I think that's ultimately what we can hang our hat on sitting here today, knowing that we're not going to be in the administration, we're not going to have control over the decisions that are made. We just know we're designing something that satisfies.
Danny Rice: And it shows up in things like just the capacity markets like what you saw in PJM. And so you're starting to see there's there's major scarcity and just new firm capacity being added. You know, it's really hard to contract just any type of firm capacity under a long term PPA, but if you have clean firm capacity that is highly highly valuable to a whole lot of potential strategic buyers on a long term basis.
Speaker Change: both Republicans and Democrats alike. I don't know if other folks have... Akash, Brian, if you guys have any thoughts on this matter.
Danny Rice: And so what that enables us to do is is essentially underwrite a lot of the capex, if not the entirety of the capex of these plants with these long term PPAs coupled with the benefit of the 45 Q, which is essentially a 12 year express PPA with inflation escalators in it. So it gets each other's really unique place where you can actually underwrite like the full returns of the plant on a fully contracted basis.
Akash Patel: Yeah, yeah, Danny, I agree with everything Danny said, Pavel. And what I'll also add is...
Speaker Change: The 45Q was enacted under Obama.
Speaker Change: It was set to expire, I believe, in 2023, and the Trump administration actually extended it. And so there's precedent for them supporting the 45Q.
Speaker Change: And then when it was, when the price of it was increased from $50 per ton to $85 a ton under the IRA, that was actually taken from the GOP bill. So, as Danny said, this is something that has pretty strong bipartisan support.
Danny Rice: And that's a really unique really powerful place to be. And so I think when you couple just kind of those underwritten economics along with just the magnitude of load that's going to be coming to these grid systems. I think what it's really forcing us to do on the origination side is shifting to these larger scale developments because, you know, while each of our modules at 250, you know, 300 megawatts is fairly sizable.
Speaker Change: Thank you very much.
Speaker Change: Thanks, Pavel.
Speaker Change: Thank you. Our next question has come from the line of Noel Parks with Tui Brothers. Please proceed with your questions.
Danny Rice: The load growth that's coming is, you know, in the magnitude of tens of gigawatts per year. And so for us, it really lent itself to these fleet deployments. So that's one of the things that us and the team really started to think about is fleet deployments, you know, two to four net power plants per pack. And so that's ultimately one of the ways that we're going to be able to drive that capex down even further.
Noel Parks: Hi, good morning. I just had a couple.
Noel Parks: You know, going back a little earlier in the call, I was a little surprised to hear you comment on
Speaker Change: oil and gas companies and that where you're you're looking for sequestration partners.
Speaker Change: they're typically going to be local.
Danny Rice: And so, you know, origination for us could transcend beyond just catalyzing us into manufacturing mode and really being a core staple of the business of net power developing that expertise of being able to pair the power markets with the subsurface markets to create this really really economic project. So I think it's still an evolution in terms of where we ultimately end up, but I think everything that we're seeing on the macro side are certainly tailwinds that will just continue to support the efforts that we're putting into the origination bucket.
Speaker Change: companies. Are there, is there any interest being expressed out there for seafishing projects by...
Speaker Change: They're invested in looking at the 45Q and just doing the math and thinking that they'll branch out.
Speaker Change: Yeah, I mean, yeah, no, no, that's a great question. I think, yeah, we've, we've certainly seen, we've seen a lot more companies being spun up in the energy space.
Danny Rice: And I think just the last thing on that is we just we just don't see a lot of new firm base load showing up into these cues. I think, you know, to Brian's point to Thomas's question earlier, like these supply chains are fairly constrained across the entire generation industry. You know, we've been seeing it over the last couple of years as we've had to push back the COD data of serial number one.
Speaker Change: that are specifically focused on sequestration. But yes, in most of these territories, you have folks that already have just local geology expertise.
Danny Rice: And we're starting to see firsthand that it's not just us that's experiencing it's everybody else in the market. And so I think all all to say, you know, is the market really starts to shift load growth because of capacity constraints into the back half of this decade, the beginning of next. It really sets us up as we enter full-scale manufacturing mode to be able to capture one that demands really going to be there. All very helpful. Thank you.
Speaker Change: and then you're seeing new teams being spun up or that have been around for a little bit of time that have now started to expand beyond just their existing home base. You know, we've seen it from folks.
Operator: I'll turn it back.
Operator: Thank you.
Speaker Change: On the sequestration side, you've really seen it from folks coming with a deep EOR experience, enhanced oil recovery, where they're very familiar with understanding CO2 sequestration. And so you've started to see those folks
Speaker Change: who have predominantly come from, you know, the Mid-Continent, you know, Oklahoma, parts of, obviously, West Texas and the Permian.
Speaker Change: developing those EOR skill sets and are now able to start applying it to CO2 sequestration, not necessarily just for enhanced soil recovery, but now for permanent geologic sequestration. And so, yeah, you're starting to see those folks do a lot more, I would say, exploration.
Wade Suki: Our next question has come from the line of Wade Suki with Capital One. Please proceed with your questions. Good morning, everyone. Take your help for taking my question. I think last quarter is the follow-up. I believe on Leo's question earlier. I think last quarter, you all mentioned that there might be another project that potentially sort of slots in ahead of this OP one as we know it today. I mean, considering the micellum class six filings, is that still possible?
Speaker Change: where they're starting to go into these other territories with their land team starting to procure acreage positions.
Speaker Change: all of it really grounded in the geology of really understanding where are the areas where you have those really thick water-bearing sandstones that are really conducive to sequestration. So we're seeing those folks pop up, which are great. You know, those folks are doing a lot of the exploration work to start to delineate and de-risk a lot of these formations.
Wade Suki: Are we sort of at the point of more certainty? And then just in terms of timing, still fair to think of OP one starting up within a couple of years of Project Permian? Yeah, hey, Wade. Yeah, the way we kind of think about it with origination and the reason why origination just gives us total flexibility is because these are our projects and until we've brought in strategic partners on the equity side on the debt side on the off take side, we kind of have like total flexibility around slotting order around just sequencing or these plants.
Speaker Change: We're starting to see a lot more teams pop up in all parts of MISO, from Northern MISO all the way down to Southern MISO. You're starting to see more folks start to focus on PJM, which is fantastic because we're sitting here today with PJM as the largest competitive power market in the U.S.
Speaker Change: It's where you're starting to see most of the load growth really constrained by new capacity additions.
Speaker Change: And so PJM becomes like a really, really interesting territory for us, the largest one if we can really crack the code on sequestration.
Wade Suki: So certainly like OP one kind of ahead of these other originated projects because we're already going through the permitting. We already have site control. All of those things for this to be an actionable project. But I think we've kind of always said, you know, we're going to we're going to try to develop the most economic projects first. And so is we're kind of looking at opportunities in some of these other regions.
Speaker Change: and so starting to see a lot of these good geology based teams getting out there in front of it on being able to delineate the sequestration resource.
Speaker Change: is really important for companies like us.
Speaker Change: because we're not going to employ the geologists per se to go out there and delineate and explore for sequestration potential, but they will. And so you're starting to see, again, that oil and gas skill set is now being applied to sequestration, and you're starting to see more and more teams get set up to do it.
Wade Suki: There's definitely the opportunity that some of these other things could slot in the head of it. If if the timing works out and if the permitting and everything falls into place. And I think one of those markets that could surprise people is probably going to be the Alberta market. It's probably the most economic place in the world to develop in that project and that power project principally because of the ITC credits.
Speaker Change: And I think that trend will just continue to play out but certainly like where we're starting today is you're starting with partnering with the folks that already have the existing expertise within these areas but more importantly the existing acreage that enables you to be able to begin sequestering sooner.
Wade Suki: You have at the federal level and at the provincial level within Alberta, favorable carbon tax pricing regime. And Alberta's been highly successful in being able to permanently sequester CO2 through a lot of like really nice geologic formations over the course of the last few years. And so that's a really unique market where, you know, we're pretty advanced on a couple of things up there in Alberta right now. And that becomes one of those markets that could leapfrog what we're doing up in the miceau area.
Speaker Change: Have a great night.
Speaker Change: Yeah, totally those, yeah, I can picture some.
Speaker Change: former people I knew who worked in EOR, this being just right up their alley, and you know, just thinking about utilities that you you've talked with
Speaker Change: in the origination process.
Speaker Change: You know, they must run the spectrum between those that maybe were more aggressive with wind and solar and, as a result, are facing the impact of intermittency issues, you know, more
Wade Suki: But I think it's the end of the day, you know, what we're really thinking of is after this first plant comes online, you know, at the end of 2027, we're quickly ramping into full scale manufacturing mode. You know, and the goal is to deploy just one or two plants per year, but it's to scale into being able to deploy dozens of these plants. So whether it's serial number two or serial number three or serial number 10, you know, the expectation is we'll be able to have that backlog of originated projects that we're starting to build that keyword right now.
Berner: from Berner, and maybe those are kind of held back, so...
Berner: maybe they haven't really made a lot of investment in clean energy yet, but of course they don't have those intermittency problems. I just wonder
Speaker Change: As you talk to those that have done different levels of investment in alternative generation, just wonder if there are any patterns you see in their thinking, their decision pace, etc.
Speaker Change: No, I mean I can't really give too much on the specifics around just
Wade Suki: We'll have those deployed before the early part of next decade. So we're really excited about being able to have just total optionality over which project we slot as serial number two, serial number three, serial number four. But I think we're going to have probably another year or 18 months before we really need to put a fork in what plant is going to be serial number two. Yeah, fantastic, appreciate that, great, great detail.
Speaker Change: their investment profile and risk profile and just their strategy around new energy. But I guess what I can say is...
Speaker Change: Because I think everybody, everybody kind of, not everybody, but a lot of these utilities
Wade Suki: You kind of led into my second question on Alberta. Sounds like a very attractive market developing up there for you all. Any hints you can give us, I think I heard you say you have secured a partner already up there. Did I hear you correctly and any color you can give on that would be fantastic. Yeah, no, we're working with a few firms up there that have really great apps. It's an extra gas really great place to be able to store the CO2.
Speaker Change: I see a lot of these other things coming on the pike and they're just so cost prohibitive.
Speaker Change: versus where power prices are today and even where power prices are going, that
Speaker Change: that we kind of have almost an entire industry sitting on the sidelines cheering for us, hoping that everything goes according to plan. And that's certainly why we're being so deliberate and rigorous with.
Speaker Change: The Baker testing at Laporte ahead of the first plant coming online is...
Wade Suki: You know, I think as we're seeing across most of these places, the power piece is probably the easiest one to solve, considering like just about every single power market is short, firm, clean capacity, and everybody's really scrambling to figure out ways to be able to procure that sort of generation capacity. So the power piece is probably the easiest of the variables to be able to solve for. The key things are really being able to figure out how am I going to get access to the lowest cost gas I can.
Speaker Change: We need to ensure this thing works as it's designed because the industry is really looking down the pike of all potential solutions.
Speaker Change: I kind of covered it in the prepared remarks, but there's really no other real solution coming on the pike that's going to have any chance of being able to decarbonize.
Speaker Change: and help us achieve these energy goals at a tolerable price. You know, new nuclear is really, really challenging for a few reasons. And it's not just the cost piece, but it's also just the time to be able to scale.
Wade Suki: How can I get as close to the CO2 sink as possible to really minimize the CO2 transportation and sequestration costs. And so in Alberta, just like within any other place in the U.S, or really any other place in the world where these plants make really good economic sense, you're typically going to be partnering with the oil and gas industry, especially on the gas procurement and CO2 sequestration side. So we're working with a couple of folks really close on opportunities up there.
Speaker Change: you know when when the industry really needs it to meet their load growth.
Speaker Change: I think everybody's now starting to look at batteries as just this, I call it a triage thing where it's being able to help prevent prices spike to $400 or $500 or $600 per megawatt hour.
Speaker Change: And so, as people are starting to look at just what solutions are coming down the pike that's going to enable us to be able to have clean power, but at a power price that's not much higher than where power prices are today.
Wade Suki: And certainly as those ones evolve and become announced, we'll definitely share with you guys more details. But all to say, you know, Alberta is a really interesting one for a lot of the same reasons why some of these markets in the U.S, are really exciting to us as well. Great. That's fantastic color. Thanks so much. Look forward to seeing you guys next month. Thanks, right? Thank you.
Speaker Change: a gas-based solution like NetPower is going to be the way to get there.
Speaker Change: You know really what we're what we're doing with them in origination Because this is an entirely new type of power plant right this isn't a bolt-on technology to a combined cycle This is an entirely new natural gas power plant
Speaker Change: it's going to be baby steps to bring them up to speed with net power and so what we're really doing is with origination is
Martin Malloy: Our next question has come from the line of Martin Maloy with Johnson Rice. Please proceed with your question.
Speaker Change: Origination becomes
Speaker Change: a gateway for them to be able to get fully up to speed with net power. And so with Origination, yes, we're going to be bringing a lot of strategic utilities into these Origination consortiums that we form.
Martin Malloy: A good morning. I was wondering if you could maybe give us an update on your approach to financing the project Permian plant and, you know, any update as far as DOE potential funding, timeline, etc. Yeah, I'm already. Thanks for the question. So, you know, we've said this on previous quarters. So we're waiting for. There's a lot of things that have to get aligned before you announce that the final financing package for the first plant.
Speaker Change: And it allows them to have a front seat to seeing how do we go through feed, through EPC, through commissioning, through operation of this plant so that they can get super comfortable, they can develop that skill set internally to be able to operate in that power plant. And then they can say to us,
Speaker Change: We understand how this plant works. This thing is great. Just sell us.
Speaker Change: We just want to buy 10 licenses to build these across our geographic footprint. So, origination is both just a commercial catalyst for us on deploying into full-scale manufacturing mode, but it's also a gateway for a lot of these utilities to get very, very comfortable with how to build on and operate in the power plant before they have to do it 100% themselves.
Martin Malloy: We're going through feed now, right? On the end of feed in Q4, we're going to open book estimates. We'll have the firm cap X number and that really will allow us to know the actual, you know, specific returns of the plant based on apply off take, etc. That we're currently in discussions with in West Texas. We are the first 200 million dollars into the plant. We've announced that right off of our of our 600 plus million dollars in cash.
Speaker Change: Great. Thanks a lot.
Speaker Change: Thank you. We have reached the end of our question and answer session. I'd now like to turn the call back over to Danny Rice for any closing comments.
Martin Malloy: We're going to be the first 200 into the plant. And then we're working on the finance and strategy with our existing owner group. [inaudible] and then, you know, there's other things within Texas that were also constantly evaluating, including the Texas Energy Fund. But as now we're assuming that it's fully equity funded.
Danny Rice: Hey, thanks everybody for for joining us today. It's it's you know, it's becoming really clear to us that that our value creation It'll be determined less by our competitiveness versus the alternatives You know, our clean power solution will inherently be lower cost and more reliable
Martin Malloy: Great.
Danny Rice: in the market today versus those coming on the pike. And so, we really see our success will be determined by our ability to prove our technology at utility scale. So, thank you for your support in helping us make that happen. Have a good day.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Martin Malloy: And for my follow-up question, one to ask about Brownfield site opportunities. Are you seeing any opportunities there to maybe accelerate originated projects?
Danny Rice: Yeah, definitely, you know, I think Greenfield, Brownfield, so Brownfield are just existing sites for the listeners that haven't heard that term before. And so I think, yeah, Brownfield sites are really interesting to us for several reasons. One, there already have existing interconnects. And so really what you're doing is we'd really just be repowering those existing interconnects. I think if you look at just like the thermal power industry over the last, you know, 10, 15 years you've seen capacity rates on a lot of these base load plants go from them serving as base load 80 to 90% capacity factors.
Danny Rice: Now they're trending down towards 50, 60% on average and a lot of them have just been fully relegated to speakers where they're operating 10 to 20% of the time and really just serving as a backup to the grid when they're needed. And so those are sites with interconnect that are highly underutilized. And so it becomes really unique opportunities for us. And so that's part of our screening assessment is, you know, for origination as other Brownfield opportunities.
Danny Rice: And so, yeah, no, it's definitely in the works that they're definitely interesting. I would say, you know, if we were trying to get a net power plants on in the next two years, Brownfield sites become really, really interesting to us. But the fact that we're talking about projects in 29, 20, 30 and beyond the Brownfield sites aren't as valuable to us as they might be to somebody that's trying to do something with it within the next year or two.
Danny Rice: But I would say, you know, when we look at just the size of generation that you can generate from our footprint, which is a lot, our plant is highly, highly dense, you know, we're talking about 15 to 20 acres for each of these blocks. And so if you're talking about four net power plants for a gigawatt, you know, we only need 80 acres. And so just the sighting requirements for us are much smaller than they are for any other real new thermal power plant today.
Danny Rice: And so we can fit into existing spaces. And so as we look at just some of these Brownfield sites, we don't think you'll necessarily need to take away the existing plant that's there. But we all get back to because we're really trying to optimize for the lowest cost source of power we can. Being as close to the sink in as close to the natural gas are two of the more important features that really drive total project economics for the cost of electricity.
Danny Rice: So those are the two driving things. And then certainly the being on the Brownfield site is important, but I wouldn't say it's necessarily in the top three or four things that we're looking at as we screen for the best place to put these plants. Thank you. Very helpful. I'll turn it back. Thank you.
Pavel Molchanov: Our next question has come from the line of Pavel Molchanov with Raymond James. Please proceed with your questions. Yeah, thanks for taking the question nice to be on your call for the first time. You touched on permitting in some of your remarks. You know, we've seen so many different infrastructure projects get delayed because of permitting over the last few years, you know, specifically in the US. I'm huge talk about kind of how that aspect of the roadmap is is going and do you envision any any delays on that front?
Pavel Molchanov: Yeah, Pavel, that's a great question. I think that's certainly one of the issues that I think the broader power industry has faced is looking at building a new transmission, new infrastructure to be able to connect their generating assets. I would say the one thing that's unique, probably more unique about Net Power, well, there's a couple things. First, we don't take up a lot of land. And I think if you look at just the transmission issues that you're seeing specifically on the wind and solar side, those folks need a lot of land to be able to build their generating facilities.
Pavel Molchanov: You know, you're talking about thousands to tens of thousands of acres for each of those. And so they're having to build out in areas where they have enough land mass to be able to build their generating assets, which inevitably means in most cases they're having to build further from where the existing transmission lines are. And they're having to lay new transmission lines. Our situation is a little bit different where we can find 20 to 100 acres close to existing transmission lines where there's not congestion on the system.
Pavel Molchanov: And I think that's certainly part of just our screening assessment as we look at where we want to where do we want to set up shop within these territories is really figuring out where is there not much congestion on the system that we can get into on the 100 acres or so. And that's certainly a screening thing that's really just afforded to our technology and not so to other forms of new clean generation.
Pavel Molchanov: So there's that piece. So I think that's probably the biggest one is we're really trying to be as close to the existing grid as possible. And I think just given a small footprint enables us to do that. So we're really able to really able to mitigate a lot of just the transmission extensions that have to happen for renewable forms of power. And then the other just role permitting consideration is really on the subsurface side on being able to permit the CO2 infrastructure, both the wells and the pipelines.
Pavel Molchanov: And again, we're really targeting being as close to the sink and as close to the grid as possible. And in an ideal scenario, we're right next to the intricate the grid and connect and we're right on top of the sink. And that's that's certainly what we're doing on on on our project up in my so that's what we're doing for our first project in West Texas. And that's kind of how we're looking at things in Alberta and some of these other places is we go through these feasibility studies is figuring out how can we be as close to the sink and as close to the grid as possible because not only is it is a good to shorten permitting times because we're not having to build massive new infrastructure that could take years and years.
Pavel Molchanov: And it's outside of our control, but it also reduces our capex as well, especially on the CO2 transportation side. The small that CO2 pipe is the lower the capex is and the higher the project returns are so all to say, like all of this goes into into just the assessment that we do. And so, you know, we're mindful of the delays that we're seeing across the industry and we're certainly being very, very thoughtful about citing projects in areas where we're not going to see, you know, fact seven year transmission line delays.
Danny Rice: Let me follow up on another aspect of policy risks, so to speak, 45Q obviously got some benefits from the Inflation Reduction Act and 90 days out from the election, there is some debate over whether the IRA will survive in its current form, if there is a second Trump administration, what's your thinking around that issue? You know, there is only so many things that we have control over and who knows what any administration is going to do.
Danny Rice: I would say if there is any single technology that can survive administrative changes, if the administration do want to change things, I think the one thing that should survive is something like Net Power and something like the 45Q for sequestration, both because it helps us meet our energy needs, it helps us, it leverages the traditional oil and gas industry on being able to procure natural gas, being able to sequester the CO2, so that certainly satisfies one contingent. But any other side is, it helps us achieve our environmental goals as well.
Danny Rice: And so there is not a lot of solutions, not a lot of technologies out there that kind of cut across the aisles, the way Net Power can where it really helps us achieve both our energy goals with affordable, reliable energy while also at the same time helping us achieve our environmental goals. So I think if there is one single technology that could survive all of this, if there was going to be change, it would be Net Power.
Danny Rice: And so I think that is ultimately what we can hang our hat on sitting here today knowing that we are not going to be in the administration, we are not going to have control over the decisions that are made. And we just know we are designing something that satisfies both Republicans and Democrats alike. I don't know if other folks have a caution if you guys have any thoughts on this matter. Yeah, Danny, I agree with everything Danny said, Pavel.
Danny Rice: And what I will also add is, the 45Q was enacted under Obama, it was said to expire, I believe, in 2023. And the Trump administration actually extended it. And so there is precedent for them supporting the 45Q. And then when the price of it was increased from $50 per ton to $85 a ton under the IRA, that was actually taken from the GOP bill. So as Danny said, this is something that has pretty strong bipartisan support.
Akash Patel: Thank you very much. Thanks, Pavel.
Noel Parks: Thank you. Our next question has come from the line of Noel Parks with two e-brothers. Please proceed with your questions.
Noel Parks: Hi, good morning. I just had a couple. Going back a little earlier in the call, I was a little surprised to hear you comment on oil and gas companies. And that where you're looking for sequestration partners, they're typically going to be local companies. Are there, is there any interest being expressed out there for sufficient projects by? You know, legacy energy companies, but for their investing outside their home base, it's one of maybe like their investment minded looking at the 45Q and just doing the math and thinking that, you know, they'll branch out.
Noel Parks: Yeah, I mean, yeah, no, no, that's a great question. I think yeah, we've certainly seen a lot more companies being spun up in the energy space that are specifically focused on sequestration. But yes, in most of these territories, you have folks that already have just local geology expertise. And then you're seeing new teams being spun up or that have been around for a little bit of time that have now started to expand beyond just their existing home base.
Noel Parks: You know, we've seen it from folks on the sequestration side. You've really seen it from folks coming with a deep EOR experience and hands-over recovery. Where they're very familiar with understanding CO2 sequestration. And so you've started to see those folks who have predominantly come from, you know, the midcontinent, you know, Oklahoma parts of it and obviously West Texas and the Permian developing those EOR skill sets. And they're now able to start applying it to CO2 sequestration.
Noel Parks: And not necessarily just for an hands-over recovery, but now for permanent geologic sequestration. And so yeah, you're starting to see those folks do a lot more. I would say exploration where they're starting to go into these other territories with their land teams starting to precarious positions. All of it really grounded in the geology of really understanding where are the areas where you have those really thick water bearing sandstone that are really conducive to sequestration.
Noel Parks: So we're seeing those folks pop up, which are great. You know, those folks are doing a lot of the exploration work to start to delineate and de-risk a lot of these formations. We're starting to see a lot more teams pop up in all parts of myso, from northern myso, all the way down to southern myso. You're starting to see more folks start to focus on PJM, which is fantastic because, you know, we're sitting here today with PJM as the largest competitive par market in the US.
Noel Parks: It's where you start to see most of the load growth really constrained by new capacity additions. And so PJM becomes like a really, really interesting territory for us, the largest one, if we can really crack the code on sequestration. And so it's starting to see a lot of these good geology based teams getting out there in front of it on being able to delineate sequestration resource is really important for companies like us.
Noel Parks: Because we're not going to employ the geologists per se to go out there and delineate and explore for sequestration potential, but they will. And so you're starting to see again that oil and gas skill set is now being applied to sequestration and you're starting to see more more teams get stood up to do it. And I think that time will just continue to play out, but, but certainly like where we're starting today is you're starting with partnering with the folks that already have the existing expertise within these areas.
Noel Parks: But, but more importantly, the existing acreage that enables you to be able to begin sequestering sooner. I don't know how to. Yeah, totally. Yes, I can picture some, former people I knew working EOLR just being just right up their alley. And, you know, just thinking about utilities that you've talked with in the origination process and I wonder, you know, they must run the spectrum between those that maybe were more aggressive with Wyndon Solar and as a result, our facing the impact of intermittency issues, you know, more from burner and maybe those are kind of held back.
Noel Parks: So maybe they haven't really made a lot of investment in clean energy yet, but of course they don't have those intermittency problems. I just wonder, as you talked to those that have done different levels of investment in alternative generation, just wonder if there are any patterns you see and they're thinking their decision pace, et cetera. No, I mean, I can't really give too much on the specifics around just their investment profile and risk profile and just their strategy around new energy.
Noel Parks: I put, I guess, what I can't say is everybody's deeply interested in seeing that power succeed, which is really, really encouraging because I think everybody. Everybody kind of not everybody, but a lot of these utilities to see a lot of these other things coming on the pike and they're just so cost prohibitive versus where power prices are today and even where power prices are going that that you kind of we kind of have almost an entire industry sitting on the sidelines chair and for us hoping that everything goes according to plan.
Noel Parks: And that's certainly why we're being so deliberate and rigorous with the Baker testing of Laporte ahead of the first plant coming online is. We need to ensure this thing works as designed because the industry is really looking down the pike of all potential solutions. And I kind of covered it in like the prepared remarks, but there's really no whether like real solution coming on the pike that's going to have any chance of being able to decarbonize and help us achieve these energy goals at a at a tolerable price.
Noel Parks: This new nuclear is really, really challenging for a few reasons and it's not just the cost piece, but it's also just the time to be able to scale. When the industry really needs it to meet their load growth, I think everybody's now starting to look at batteries. It's just this, I call it a triage thing where it's being able to help prevent prices spike to four or five hundred or six hundred dollars per megawatt hour.
Noel Parks: And so as people are starting to look at just what solutions are coming down the pike that's going to enable us to be able to have clean power, but at a power price that's not much higher than where power prices are today. You know, a gas-based solution like net powers is going to be the way to get there. And so, you know, really what we're doing with them in origination because this is an entirely new type of power plant, right?
Noel Parks: This isn't a bolt on technology to a combined cycle. This is an entirely new natural gas power plant is it's going to be baby steps to bring them up the speed with net power. And so what we're really doing is with origination is origination becomes a gateway for them to be able to get fully up to speed with net power. And so with origination, yes, we're going to be bringing a lot of strategic utilities into these origination consortiums that we form.
Noel Parks: And it allows them to have a front seat to seeing how do we go through feed through EPC through commissioning through operation of this plant so that they can get super comfortable. They can develop that skill set internally to be able to operate in that power plant. And then they can say to us. We understand how this plant works. This thing is great. Just sell us. We just want to buy 10 licenses to build these across our geographic footprint.
Noel Parks: So, origination is both just a commercial catalyst for us on deploying into full skill manufacturing mode, but it's also a gateway for a lot of these utilities to get very, very comfortable with how to build on and operate into our plant before they have to do it 100% themselves.
Danny Rice: Great. Thanks a lot.
Operator: Thank you.
Danny Rice: We have reached the end of our question and answer session. I'm now like to turn the call back over to Danny Rice for any closing comments. Hey, thanks everybody for joining us today. It's becoming really clear to us that our value creation. It will determine less by our competitiveness versus the alternatives. Our clean power solution will inherently be lower cost and more reliable in the market today and versus those coming on the pike. And so we really see our success will be determined by our ability to prove our technology at utility scale. So thank you for your support in helping us make that happen.
Operator: Have a good day. Thank you.
Operator: This does conclude today's teleconference. We appreciate your participation. May disconnect your lines at this time. Enjoy the rest of your day.
Operator: Thanks a lot.