NET Power Inc. (NPWR) Earnings Call Transcript & Summary

Greetings. Welcome to the NET Power Inc. Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Bryce Mendes, Director of Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to NET Power's Second Quarter 2023 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. This morning, we issued our earnings release for the second quarter of 2023, which can be found on our Investor Relations website, along with this presentation at ir.netpower.com. During this call, our remarks and responses to questions may include forward-looking statements. Actual results may materially differ from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I'll now pass it over to Danny Rice, NET Power's Chief Executive Officer.

Thanks, Bryce. Hello, everyone. Welcome to NET Power's inaugural earnings call. Many of you have been following the NET Power story since we announced the transaction to take NET Power public back in December 2022, where for all the new investors in NET Power, I'd like to provide a brief introduction to the NET Power story and an overview of our technology. Brian and I will then provide an operational update and discuss our corporate strategy before passing the call over to Akash, to discuss our financial results for the quarter. We're going to reference a few of the slides in the presentation we posted to our website this morning. So I'd advise you to have those slides open and follow along. But first, let me set the stage a little bit and give some background to the opportunity as we see it. It's been 6 years since my last earnings call. Back then during my time running Rice Energy, we unlocked the supply potential of U.S. natural gas, which has become the lowest cost source of energy in the U.S. and the world. As a result, here in the U.S., natural gas replaced coal as the #1 source of power generation and has been the #1 driver of lowering U.S. CO2 emissions, lowering the cost of power and lowering emissions from power that is our North Star. So we hear again on the public stage continuing this mission with a technology that gets us even closer to that North Star. NET power, a technology that transforms natural gas into one of the cleanest sources of low-cost power anywhere on the planet. So before we jump into the details of the technology and the process we're making on commercialization, let's start with a little background on how we got here. I joined NET Power as CEO upon the successful close of the business combination between NET Power and Rice Acquisition Corp. II on June 8 this year. We formed Rice Acquisition on the premise that energy demand will continue to grow on every corner of earth and it's imperative we continue to develop new sources of low-cost energy to meet this growing demand. And with growing trend in electrification of everything, more and more of that energy demand shifts to the grid. So at Rice Acquisition Corp., we specifically set up to find the best technology to generate this low emission power without compromising energy affordability or reliability. So there were 4 key tenets to our assessment: how reliable is this power; how affordable is it; what's the carbon intensity; and what's the technological maturity. The solution we chose had to be better than the status quo across the board, and it had to be commercial this decade. With this criteria in hand, we proceeded to evaluate all sources of power. We looked at nuclear, both conventional and small modular reactors. We looked at all shades of hydrogen. We evaluated geothermal, hydro. We evaluated post-combustion carbon capture, suffice it to say, we looked at it all. And there's a time and a place for each of these technologies. And while we believe in an all of the above approach, we must first prioritize and pursue the ones that reduce costs and reduce emissions. None of those technologies I just mentioned do both. And then you have this company in its own little bucket, NET Power which a decade ago invented a new way to generate low-cost power for natural gas with no emissions. Knowing what we know now about natural gas, we have over a century's worth of very well-known, very low-cost natural gas that is the feedstock to this NET Power cycle. In terms of technological maturity, the NET Power team has spent the last 12 years designing the technology and ultimately proved it at a sufficient scale to conclude its technology work at grid scale size. So here, we have a better way to generate power using natural gas that creates no emissions and with the existing incentives that we have here in the United States through the IRA and 45Q, not only can a NET Power plant be a source of clean, reliable energy but it can also be more affordable than the carbon emitting alternative. So that's really the macro setup for this company, and it's a pretty specie position for us to be in. So to really contextualize our thesis, I'll direct you to Slide 6 of our investor presentation posted to our website this morning. The Y-axis is levelized cost of electricity stated in dollars per megawatt hour. This figure is the price at which the asset owner needs to sell their electricity in order to generate a 10% return on their investment. The X-axis represents life cycle emissions in grams of CO2 equivalent per kilowatt hour of electricity produced. This is the amount of CO2 emissions, turning raw materials into power. We should want to get closer to 0 cost, 0 emission power. That in itself will never exist, but that is the direction we should be heading. So to get you oriented, the yellow circle in the center of the chart is where we are in the U.S. today. Our grid system has an average carbon intensity of 390 grams per kilowatt hour and an average cost of power of $52 per megawatt hour. For context, a decade ago, that yellow dot was up and to the right, higher cost and higher carbon intensity. But because of coal to gas switching, we witnessed a meaningful reduction in both costs and emissions. So on this chart, we've applied all of the possible sources of scalable power that we have at our disposal and you can visually see the potential trade-offs. You can reduce emissions with nuclear and renewables like wind and solar, but it comes at a markedly higher cost of power. And in the case of renewables, challenges with reliability even with batteries. But look where NET Power lands in this chart. Our first utility scale plant, which will inherently be the most expensive plant we ever manufactured, delivers the same cost as our grid today but with markedly lower life cycle emissions. Our first plant is more than half the price of new nuclear and delivers the same reliable around-the-clock clean power. And as we scale into manufacturing mode, our planned CapEx will go down, and our cost of power dropped dramatically into a quadrant all by itself, meaningfully lower emissions and meaningfully lower costs than any source of power today. That's why we're all in on that NET Power, more affordable, cleaner and with 24-hour reliability without compromise. Now it's worth noting this is a map of the United States grid and every country will look different. Some countries will have a lower cost of coal power, higher costs of gas power, higher cost of renewables, et cetera. But deploying just in the U.S. market will keep NET Power busy for decades. We estimate that replacing every retiring baseload power plant in the U.S. over the next 20 years would require over 1,300 NET Power plants. So the price here in the U.S. is incredibly beneficial to all our stakeholders, the consumer, the environment, our customers and our shareholders. Turning to Slide 7. The best way we can describe the macro environment for power generation is a growing tug of war between 2 [ camps ]. On one side, the regulatory regimes tasked for driving a reduction in future emissions. And on the other side, the electricity grid operators tasked with ensuring access to reliable and affordable power. Right now, there's no single solution that satisfies both sides and again, is where NET Power fits in. On the regulatory side, the EPA recently proposed new carbon emission standards for current and new fossil fuel-fired power plants. The proposed rules recommend that large-scale baseload coal and gas power plants to capture or eliminate 95% of their emissions by 2035. Now there's no technology able to do this today and the only solution coming down the pipe that we think we'll be able to do this is NET Power. Interestingly, NET Power was the technology referenced more than any other in the EPA report does have an ability to meet their standards, which we agree. On the industry side, grid operators across the U.S. are making styrene calls that we're not building enough reliable, dispatchable power capacity to replace the existing aging fleet across the U.S., which will cause issues for constant access to power down the road. The average coal-fired power plant in the U.S. is over 40 years old, same with nuclear. Natural gas plants are approaching 30 years of age in average. These plants are unable to operate for another 10 to 20 years and new plants will need to be built. However, they're not. Why? It's a combination of uncertainty with future potential regulations, which has a chilling effect on building new baseload today. BPA's proposed rules are a good example of that. No one wants to build new carbon emitting baseload today if they're needing to comply or shut down within the next decade. But it's also the growing renewable penetration that's eating into these baseload plant's operational capacity factors and uncertainty in where capacity factors will be in the future has a similar chilling effect on new investment in these baseload power plants. So these system operators are raising their hands saying they see a major shortage of new dispatchable power being built, which will inevitably cause major reliability and cost issues down the road. For example, PJM, the United States' largest grid operator recently released a study announcing 40 gigawatts of baseload power generation, largely coal and gas. On their system will likely be retired by 2030 and there's only 4 gigawatts of new baseload in the interconnect cube. This is really problematic for future grid reliability. And PJM is not alone here. The vast majority of grid operators in the U.S. have signaled the same concern. So when we think about future proofing power generation, we would consider NET Power the most future-proof power plant solution. Not only does it eliminate the CO2 emissions, but we also have no major sources of air pollutants like NOx and SOx, which is entirely within EPA's preview. So when we put it all together, NET Power is the only solution we see that gives both sides what they want, reliable, low cost and clean power. The energy trifecta is quickly becoming the driver of demand and NET Power is preparing to deliver this at scale. On the next slide, we'll briefly walk you through our technology. So the NET Power cycle is a patented oxycombustion, supercritical-CO2 power generation cycle. It's important to note that this is not a retrofit system added to existing power plants. This is an entirely new plant, a new power cycle that produces clean electricity using natural gas feedstock. So the cycle begins with oxycombustion. First, an air separation unit, or ASU, captures the oxygen from the air. Air is 78% nitrogen, and we do not let this nitrogen into the combustion chamber. This eliminates the formation of NOx and air pollutant. This is unique to NET Power. So natural gas has nearly no sulfur also, so there's no SOx formed either. So before the process has even started, we've already eliminated the 2 primary sources of air pollution from power generation. So then we take this captured oxygen, nearly 3,800 tonnes per day and combust it with 45 million cubic feet per day of natural gas. This oxycombustion process produces 3 things: a whole lot of energy, carbon dioxide and water. At this stage in the process, the carbon dioxide is in a dense phase, commonly known as supercritical state. Supercritical CO2 is a superior working fluid to spin the turbine blades to generate nearly 300 megawatts of clean electricity per hour and transmit it to the grid. With the power generated, we take the CO2 water mixture and reduce the temperature and pressure in order to remove the water, leaving us with a pure stream of CO2, nearly 900,000 tons per year that is ready to be sequestered, no post-processing required. We believe this process to be the most cost-effective way to capture CO2 from gas power generation. So where do we think NET Power plants make good economic sense. We really need 3 things: First, we need access to natural gas, the lower the cost, the better; second, we need demand for power. This is a great scale clean power and the larger the power demand, the more plants we can deploy in fleet configurations. The higher the price -- power, the better. And when we couple gas prices with power prices, we have what's commonly known as spark spread, which is really the economic margin from converting gaseous energy into power. This varies from region to region and country to country; and third, we need a place to permanently and safely store the CO2. The most proven and effective place to store CO2 is deep underground where that CO2 will stay forever. We want high porosity, high premier ability geologic formations typically found in sedimentary basins. Many countries across the world have instituted an economic incentive to store CO2 as well. And when we put it all together, the U.S., Canada and the Middle East look to be really promising markets. Southeast Asia is also very promising long term as is Europe. And as we've highlighted in prior presentations, the U.S. is the most exciting. We have the world's largest supply of low-cost gas for the next century. It's the world's second largest power market with an aging base fleet that will need to be replaced very soon, the equivalent of nearly 1,300 NET Power expenses I mentioned before. The U.S. also possesses the world's most prolific CO2 storage potential as well enough to store CO2 for over 300,000 NET Power plants. In addition, the Inflation Reduction Act 45Q provides $85 per ton for each ton of CO2 sequestered. This incentive will be key to catalyzing demand, which in turn enables us to scale up and reduce our plant CapEx over time. And in time, we expect the cost of the plant to be fully underwritten just by the 45Q. So think about that for a second and how profound that can be. Clean, reliable power is free upside. So we're excited about the opportunity in front of us. Yes, there is substantial economic upside to be captured. But most importantly, there is a potential for massive emissions reductions globally as a result of correctly deploying technology at scale. Now that it's really on us to get this right as we shift our focus to global commercialization. So we're fortunate to have supportive owners and strategic partners, representing some of the largest energy complexes in the world. They are fantastic champions of our technology and their domain expertise has been and will continue to be an invaluable part of our path to commercialization. A majority of these owners have been with that power for several years, and have been instrumental in providing the capital and expertise we needed to develop and validate our technology. We've conducted multiple testing campaigns at our 50-megawatt thermal test facility in La Porte, Texas, just outside of Houston. We broke ground on the facility in 2016, achieved first fire in 2018 and successfully sinks to the ERCOT grid in 2021. We've validated the necessary temperatures, pressures and chemistries needed to move forward with our utility scale plants and have built out an elaborate proprietary control system. It's worth noting that while our utility-scale plant is an 11x scale-up in thermal input relative to La Porte, it is only expected to be a 3x scale up in land footprint, thanks to the energy dense properties of the supercritical CO2 working fluid. Now on to corporate strategy. So over the past several months, we spent a lot of time synthesizing our technology, the market opportunity and long-term vision into a long-term plan. We developed this 3-pillar corporate strategy that will really be the foundation of our focus. While this might appear simple and obvious on surface, the intent is to ensure our capital allocation and the decisions we make over the next several years are fully aligned with our long-term vision. It also serves as a helpful tool to establish alignment amongst all our stakeholders, current and future, with where we are today and where we're going. So the first pillar is to develop improved NET Power's technology at the utility scale. To achieve this, we will continue to progress our joint development program with Baker Hughes. Together with Baker, we plan on conducting several testing campaigns at La Porte in 2024 and 2025, which will provide invaluable operational data ahead of deploying the first utility scale package targeted for 2026. As we progress through feed, we are concurrently issuing RFQs for long lead equipment in negotiating supply and uptake agreements for natural gas, water, power and CO2. This will form the basis for project financing and bring the first project to final investment decision in 2024. Finally, the ultimate goal for the first utility-scale deployment will be to construct and operate with a focus on clean, reliable and safe operations as it will serve as the launch point for all future deployments. The second pillar of our corporate strategy is to build the project backlog. Because we own the IP to this technology, it provides us immense latitude with how we bring our plants to market. In one hand, we have the ability to follow the traditional licensing model. In the other hand, we have the ability to originate projects in order to accelerate development and cut down the time from FID to COD. Collectively, these 2 models will enable us to accelerate and ramp plant deployments across a range of geographies domestically and abroad. This is not just another power plant. Yes, this is a clean, reliable, cost-effective power plant, but CO2 sequestration is a major part of our economic proposition in the entirety of our environmental value proposition. We are currently undertaking this mapping exercise to determine the intrinsic value of our plants in every single market. Proximity to CO2 Sync and proximity to grid are very important, both for economic reasons and social. We want to minimize our service impact wherever we can. So we're going through this exercise today to identify the areas where both the subsurface is conducive to severe sequestration and the electric transmission network exists above ground within high spark spread regions. These are the areas of our focus. But it goes beyond that. This is grid scale power plants and locating dozens of these plants in many states has the potential to fully eliminate all power emissions and get to true net-zero grid without compromising cost or reliability of power. So this planning exercise we're conducting isn't just for identifying sites for individual plants, but rather developing master plants for statewide deployments starting from the CO2 storage and working our way onwards. We want to set our customers up for success and the team we're building hearing that power will be a combination of surface and subsurface experts to ensure our plants are deployed from a methodical, thoughtful plan. Our focus over the next few years is to convert this information into full-scale deployment plans for each region such that when our first plant comes online, we have their visibility where to deploy the next 100 plants. And this is where our origination will play an outsized role in setting the table for future deployments, lining up the CO2 sequestration, securing the surface rights for plant sites, going through the steps to connect to the regional grid system and forming strategic partnerships with a variety of stakeholders to set these projects up for success. With this approach, we believe we will accelerate deployment of NET Power's technology in the most cost-effective and responsible manner for the benefit of our customers, the communities where these plants will be located and our owners. Importantly, this can all be done with limited capital allocation prior to the first utility-scale plant coming online. Our goal is to have a robust backlog that creates pathways to state-level decarbonization by the time that first plant comes online. Finally, the third pillar is to prepare for manufacturing mode. Similar to the IP giving us creative control over how we go to market commercially, the IP also gives us total creative control over the design of our plant. And as we think about setting our customers up for success, one of the largest drivers of our plant economics is CapEx. The easiest way to reduce CapEx is standardization of design in producing these plants in a manufacturing mode rather than each plant being bespoke with different parts sourced one-off, a standardized design means continuously producing the same parts over and over. These scale efficiencies will be a big driver of future CapEx reductions. Similarly, more work will take place in a controlled factory environment and less will take place in the field at remote locations where power -- wherever power is needed globally. By taking this approach, we will ensure that we have control over driving down the plant capital cost, reduce project risk and reduce lead times to build NET Power plants. This will entail working with world-class partners, and we're well on our way with Baker Hughes, Zachary and more to follow. Strategic partnerships will not only enable the type of standardization we're pursuing but also ensures these suppliers can make the supply chain capacity commitments we need for our future customers. We're hard at work today identifying these world-class partners intended to prequalify and license them to support our transition to manufacturing mode. So with that, please let me turn it over to Brian to provide an update on our utility-scale deployment pathway.

Thanks, Danny. Looking at Slide 12. We're hard at work advancing our technology for the 300-megawatt plants -- utility-scale plant. Our technology development encompasses 3 main areas: First, we are advancing and optimizing our process design to ensure that our technology can deliver the energy trifecta. This work is informed by our prior testing results and lessons learned before. The joint development work with Baker Hughes is progressing well, and we have implemented cycle process improvements based on better turboexpander and other key rotating equipment design progress. Second, we are taking advantage of our La Porte facility to conduct additional demonstration testing over the next few years. We are currently retrofitting La Porte to conduct future Baker Hughes combustor and turboexpander demonstration tests. These demonstration tests will derisk the first utility-scale project and allow us to refine our plant control system with the Baker Hughes equipment. Third, we're developing the standard utility-scale plant design through our front-end engineering and design or FEED, work with Zachary and by integrating other key major equipment suppliers. The utility-scale technology will be deployed at our first site, project Permian, ultimately leading to full technology validation, which will open up the floodgates to move into mass deployment at scale. It's important to note that all 3 of these areas I discussed are linked and in development in parallel with the ultimate goal of delivering the energy trifecta at utility scale. Moving to Slide 13. In late 2022, we announced development that commenced in our first 300-megawatt plus plant near Midland-Odessa, Texas, which we are now calling Project Permian. The goal of this project is to demonstrate clean, reliable, safe operations, which sets the stage for further deployments. We are currently progressing through the FEED with Zachary Group, a fantastic partner and our first prequalified provider of engineering, procurement and construction services. FEED is expected to conclude in 2024, which will not only advance Project Permian, but also form the basis of NET Power standard plant design. Some additional notes on Project Permian. We finalized our plant location on an Oxy hosted site and submitted our ERCOT interconnection application. We also submitted a grant application for up to $270 million to the U.S. Department of Energy's Office of Clean Energy Demonstrations in May '23. As I mentioned, the Project Permian plant design forms the basis of a suite of standard modular plant designs that we will develop for global deployment with only minimal site-specific modifications outside of our standardized power island. Controlling plant designs and building a preferred network of licensed OEMs, module suppliers and EPC firms to manufacture and construct NET Power plants will allow us to achieve major cost reductions, reduce project risk and reduce project schedules. As we build out this licensed supplier network, we will ensure that we have the capacity required to achieve manufactured mode by the end of the decade in support of our customers' fleet deployments. We look forward to providing further updates on the technology development, Project Permian and other projects. Now I'll hand it over to Akash to discuss our second quarter financial results.

Thanks, Brian. The NET Power team is very excited to begin its next chapter as a well-capitalized public company. As mentioned by Danny at the outset of this call, we successfully completed the business combination of NET Power and Rice Acquisition Corp. II on June 8 and had the honor of bringing the open ballot in New York Stock Exchange on June 9. Through the transaction, we received gross proceeds of more than $670 million, consisting of approximately $133 million from RONI's trust account and approximately $540 million an upsized PIPE capital received from both strategic and financial investors. Net of transaction expenses and company operations since close. We ended Q2 with approximately $649 million in cash on the balance sheet. The proceeds from the go-public transaction are expected to fully fund our corporate build-out and provide ample capital to not only anchor the equity capital required for our first utility-scale plant, but also to accelerate the origination efforts for future deployments. The final slide of our presentation provides a detailed breakdown of the company's fully diluted share count of approximately 246 million shares as of June 30. This is comprised of approximately 210 million Class A and Class B shares currently outstanding, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, 2 million shares subject to earnouts or vesting and over 14 million shares issuable pursuant to the Baker Hughes joint development agreement. That concludes our prepared remarks for this call. We will now turn it back over to the operator and open it up for Q&A. Thank you.

[Operator Instructions] Our first questions come from the line of Thomas Meric with Janney Montgomery Scott.

Good morning. Just a couple for me, and maybe I'll start with Project Permian. Just if you could update us on the current strategy for financing the project. I know you mentioned the 270 grant applications submitted. But beyond that, what's the consortium contemplating? And then maybe specifically, if you have any update for the LPO application.

Thomas, thanks for joining. Thanks for the question. Yes. So just to go back to where we ended the transaction. We ended up with $650 million on the balance sheet. And primarily, we do fully fund our corporate operations with that capital. But obviously, we outsize the raise in order to ensure that we have an anchor equity investment for the first project, right? So the first project will be the most expensive one we ever built. Our current estimate is roughly $950 million, and we're going to hone in on what the actual capital is once we get the fee, right? So as we finalize the CapEx and we finalize the gas supply, the power offtake and the commercial contracts associated with that, we'll have a really good understanding of where the project returns are and what the actual required funding is beyond our equity investment. And then simultaneously with that, we did apply for the DOE program in May. And so we'll be hearing back on that in the coming months. So a long-winded way of saying we are building a consortium. We're waiting to hear back on the grant program. And as we hone in on total capital required and what the actual returns are of the project, and we'll be able to build the consortium. But importantly, we have existing strategic investors as well as future customers that recognize really 2 things. One, the importance of a successful first project and the market that unlocks. And two, they view [ SM1 ] as a vehicle to deploy multiple projects thereafter. And so we're -- we feel pretty confident in our ability to get that project funded. We just got to go through the methodical process of what's required to get there.

Helpful. And maybe more medium term just on delivering Class II estimate to potential customers. Is there any updated view on when that could potentially come out?

Thomas, What do you mean by Class II estimate?

Just a commercial CapEx estimate to potential commercial licensees?

Yes. Got it.

Yes, this is Brian. So we're in the FEED right now for the first project. And really, we need to advance that in order to be able to support the downstream project estimates. So our goal coming out as we're doing the joint development work is to develop a Class II estimate to move forward with the first project financing. We don't really have a date to share at this moment of when that would be ready for a standard design to start sharing with other customers, but certainly, that will follow after we complete the FEED for the first one.

Got you. And then last one for me, just kind of more regulatory in nature and a little bit high level. But on Class VI primacy applications, what states do you think are far along in that application? I know Louisiana has their application in. But thinking other states like Illinois, Texas or even California, do you have any update or expectation for those applications?

No. I mean we don't have any additional information other than what's out there publicly. I think just to provide just context for everybody. So right now, North Dakota and Wyoming have Class VI primacy, Louisiana is on the doorstep of receiving it. And then there's a bunch of states in that process right now to take over primacies in the EPA. I think -- when we take a step back and look at just like what is some of like the timing risk on Class VI sequestration, I really don't think it's going to be Class VI permitting long term, right? And I think if we were sitting here today, meeting Class VI permits for projects that we had coming online in 2024, 2025 or 2026. That would make us a little bit squeamish, but we're really talking about as we look at projects in 2027, 2028 and beyond. There's more than enough time between now and those dates for, one, for state testing of primacy; and two, for companies to go through that permitting process through the EPA right now. But I think one of the other things that we're really looking at that is really important here is really looking at being able to co-locate these -- locate these planes where there's both Class II, Class VI sequestration potential, right? And then that's certainly, like, what we're going to be doing with this first plant is really expediting through the sequestration process, being able to tap into doing Class II sequestration, which is what we have with Project Permian in West Texas, right? There's no new permitting that needs to happen. The CO2 is going to be going into Class II wells. And typically, in most states that have primacy over Class II, that Permian process is really, really quick. We're talking about months, not years. And so it's just part of this mapping exercise of really where do we want to start focusing our early plant deployments. In an ideal world, there's going to be in areas where you have the Class II potential, not because necessarily you want to produce oil, but because it's a faster pathway to permitting. But the real prize is Class VI permitting sequestration down the road as both those states acquire primacy. And as you start to prove the sequestration potential at these deeper saline aquifers. So I think all of this really factors into a lot of -- why it's really important we internalize a subsurface team is to really, really to identify those areas where there's that stacked potential per se, on Class II, Class VI. But I mean the most interesting thing for us, and this is really important, is most of these states that are sitting there today there's no CO2 within their boundaries. There's not a lot of CO2 activity happening on EOR or in Class VI and just because there's no CO2 anywhere to be found. And so for a lot of the states, they're thinking -- I probably won't ever really need to go through the Class VI process to take over privacy. But then all of a sudden, you have a company like NET Power that can decarbonize their grid and capture that CO2 for sequestration within these state boundaries. And so we're probably going to be one of the few companies that will be proactively working with a bunch of these states saying, we're going to want to bring our plants to your states. We're going to have the opportunity to fully decarbonize your grid systems and sequestered tens of millions of tons of CO2 per year. We're going to be the ones walking hand-in-hand with these states to go through that primacy process because our technology is really going to be the one that really unlocks the sequestration potential within their boundaries. So more to come there, but we're really encouraged to see both the states want to take over primacy, but also the EPA really encouraging the states to do so. If it makes sense for them.

Our next questions come from the line of Leo Mariani with Roth MKM.

I wanted to focus a little bit on some of the numbers here. Just wanted to kind of get a sense of when you guys think you'll start to see a little bit more meaningful revenue. I'm guessing that it's kind of a number of years out. I don't know if that needs to coincide with the startup of the first plant Project Permian or there might be revenues in the year or 2 leading up to that. I just kind of wanted to get a little bit of a sense of kind of revenue projection knowing that it's a handful of years out.

Yes. No, great question, Leo. I think for budgeting purposes, and this is really for us to be able to go in with running like the most conservative forecast and the most conservative just budget impossible but really just capital allocation purposes. We're good all the way through 2027 without any revenue coming in. And that was really a function of why we upsized the pipes the way we did to $670 million. And so that doesn't -- that obviously does not mean that we're not going to be bringing in revenue before them. But I think what it really means is it gives us a ton of runway on building the right backlog of projects. And I think like that's the most important thing for me is one of the pitfalls, you really see with some of these other early-stage energy technology companies is they're kind of forced to commit -- to do projects that would otherwise derail them from their long-term vision of where they want their company to be and where they think their projects needs to go. We're not going to have that problem at all because we do have such a long runway. But I think, like -- as I look out in time, as we get closer to commercialization of serial #1, as we really started to build this commercial backlog over the next couple of years. And a lot of that, like I mentioned in the prepared remarks, is really going to come from the origination angle, were the ones actually going out there and catalyzing development. That's where you're going to start to see us certain line of partners and more likely than not begin to see some revenue coming in. But the main focus for us is really less on revenue near term and more on building the right backlog of projects so that when serial #1 does come online, we have a really healthy pipeline of deployments to get us through the end of the decade. And so if that means revenue coming in, in '25 or '26, that's great. But I think our real focus is on finding the right areas where these projects make the most economic sense because if that's really what we're focused on, that will inevitably lead really healthy revenue growth in the future years.

Okay. That's helpful. Obviously, you guys have your site located for plant #1. Can you maybe just talk about kind of where you guys are in discussions for sort of plant #2 or plant #3? I realize that you're doing a fair bit of testing on some of the new Baker Hughes equipment in 2024. But -- just kind of wanted to get a sense of kind of where you guys are in commercial discussions on plants other than the first one here.

Yes. The only one we're really talking about publicly is what serial #1 is going to be or going to West Texas to that Oxy hosted site. I think we kind of have a ton of flexibility with where serial #2 is going to be. We're working on some early-stage things that we're not willing to share with folks yet just because it's still early at this point. And -- but those projects are going to have a real shot at being the next plant after serial #1. And in addition to that, I think as people talk from the December presentation, we have other early adopter projects that are interested in getting into that queue. But ultimately, these first dozen or so projects are going to be the most important ones for our company because it's really going to put a spotlight on what this technology can do, right? And so we're going to be very selective about what project ends up as the second plant, what project ends up at the third plant. I think, like, what we really want to get to, and again, I kind of mentioned this at the top of the call, we don't want to be in a place where we're just doing one-off projects for the next 30 years. And it's both because I think it's just not a great use of our resources. And it's really just not a great use of just the potential of this technology. Like this really is sort of a grid scale technology. And so what we're really focused on are there's opportunities where we can lay out a master plan for let's just call it a state. We identify where we want to put the first plant and we really have it all mapped out with where the next 20 or 30 plants are going to go from there. And just to give some context to it, the average state in the United States has around 30 to 40 equivalent power plants is what the potential could be. So we're really talking about laying out plans where we have a pathway to broad commercialization and deployment of these NET Power plants in these areas. And so if I had to wave my magic wand and pick up the ideal scenario, serial #2 is going to be a plant where we have a pathway to delivering 20 to 30 plants in that given area with a consortium of strategic stakeholders.

Okay. That's helpful, guys. And then just on the cost side, I wanted to see if maybe you could help out a little bit there, kind of looking at second quarter financials. I'm seeing around $11 million of R&D for the second quarter. On the G&A side, it looks like I'm seeing something around just over $30 million. Just wanted to get a sense, are those kind of the right kind of run rate quarterly numbers going forward here. I imagine there might be some onetime costs in the G&A for the SPAC transaction and all of that. But just any help you can kind of give on thinking about some of these key costs?

Yes. Leo, it's Akash, I'll take that. Yes, you're right. There is a lot of noise in Q2 as it relates to the transaction. And so what I'd point you to is if you look at the year-to-date predecessor cash burn, that's year-to-date through June 7. The cash burn from operations was roughly $11 million. And so -- annualized, that's roughly $25 million. And then we also had about $2 million in CapEx, which reflected La Porte modifications and the start of [indiscernible]. And so -- we do expect both the cash burn from operations and the investing activities to ramp up in the second half of the year. But there's a lot of noise in Q2, and there are a lot of noncash items in there. So keep that in mind. But one other point I'd make is, we again did size the capital raise to ensure we had all the capital we needed from a corporate perspective to get through 2027. And so we feel pretty good about where we are here. And I do note that we're sitting on $650 million in cash on the balance sheet. And then in the current interest rate environment, our balance sheet cash is being put to work and is in the near term materially offsetting the corporate spend. So that's also a pretty great tool we have in our took kit right now.

Leo, just to put numbers to it. When we're sitting here with $650 million in cash and interest rates are 5.5%, 5%, I mean, we're talking about $30 million or more coming in, in interest income. So, I mean, that's offsetting the majority, if not all of our G&A right now. And that obviously changes the time we're spending this money on serial #1 on the Baker Hughes JVA. But it puts us in a much more unique position having this much liquidity on our balance sheet today. It just gives us additional runway than others.

Our next questions come from the line of Ryan Levine with Citi.

Just a couple of questions. In terms -- maybe to follow up on that last point. So with your cash generation from interest currently exceeding your cash burn, are you going to be providing guidance around what your burn rate will be in future time periods? And does the incremental interest allow you to accelerate any development efforts or build out more of a team to pursue additional customer opportunities?

Yes. I think just kind of given our conservative nature all around, we're really not banking in the -- we're not bidding on this yield curve continuing to just [indiscernible] and stay at 5.5%. I mean we are expecting it to go back to 2.5 -- 2% on the 10-year. So we're really just -- we're obviously taking advantage of this money and putting on the balance sheet, but we're not banking on that money being available as we think about just capital allocation longer term. And then, Ryan, to your question on the June 8 piece, we are still growing. This time last year, NET Power had 6 or 7 full-time employees. We're now at 36 on pace to get to 39 by the end of September. And these are all supercritical folks, especially on the engineering side, really in the event of supporting the development of the utility-scale plant. And so that had kind of the course of the next 12 months, will continue to go up. And certainly, as we come out publishing a 2024 budget in a forecast, we'll certainly update everybody then with what our ongoing cash burn is going to be.

And then in terms of the Texas power plant, where are you in the ERCOT interconnect application process? And how long do you expect that to be another? Any other changes that you anticipate with the recently passed Texas legislation regarding generation in the state?

Yes. I mean we've made the interconnect application, and we are following that legislation. So all I can say is we're in the process and waiting to receive feedback in the next month or 2 from the state.

Do you have any...

No, this is Danny. I was just going to say, I think when you look at like the 2 biggest permitting items for a NET Power plant, the permit just requester in the permit to send your power into the grid. And we don't need permits for sequestration because we're going to be tapping into a very extensive CO2 network with Class II wells already in hand and Oxy. So that takes that risk off the table, which is a really unique place for us to be, and really isolated just to the plant at that point in terms of really the commercial risk. And then as far as the interconnect, we're talking about at least being 3 years ahead of when we would actually want to connect into the grid. So because we have -- we already have the site pick that's what allowed us to get into the interconnect queue at the time we did. So, I think, when you fast forward to -- when you just look ahead, the CO2 permitting -- the power permitting on the interconnect are not going to be the long lead items for us here.

[Operator Instructions] Our next questions come from the line of Wade Suki with Capital One.

Just first on the Baker equipment, if I could. I just want to make sure I'm understanding this right. Are these going to be scaled down versions of the equipment that you'll see on a full-scale utility project?

Yes. There's a parallel development program. So we're developing both the utility scale that will go to the Project Permian at the same time as we're developing a demonstration scale. We already have the La Porte facility built. So it's just an awesome opportunity to use the one-of-a-kind location in the world that you can do R&D and demonstration testing at this scale. So, yes, there's a parallel program to develop both a demonstrator, turboexpander and combustion system and then as well, we're developing the utility-scale system to be validated at the Project Permian.

Fantastic. And just in terms of time line, any sense for when the test equipment gets on site? I know you're going to start testing next year sometime and going into '25. But just any kind of color you can give on timing when that equipment gets on site, start testing those kinds of things? And whether you'll be doing independent testing of the combustor versus the expander and then presumably combined testing?

Yes, that's exactly right. So some equipment will begin arriving next year. There is separate testing of combustion systems, which is typical for turbine development, component testing and then be integrated turboexpander with combustion system to follow later. So to answer your question, first testing starting next year, we're already updating -- modifying our site for that specific equipment, and that will take place next year and then all the way through Project Permian starting up.

Fantastic. Just switching gears, just kind of dovetailing on one of the questions that came up earlier on costs, not to press too much here. But in terms of the Project Permian cost, I guess, we'll get a better sense by what, midyear, third quarter when you FID, is that still a decent time line to think about?

Yes, that's a decent time line. Our focus right now is working with Zachary on the FEED, while in parallel, we're developing the technology. So these things complement each other and are iterative. So, yes, before Akash shared our target estimate. And as we come out of the feed, next year with Zachary, that will then determine next steps going into FID. So it will be next year.

Perfect. And then just -- otherwise, in terms of all the -- you all were very detailed in your Investor Day in the spring in terms of time lines, still feeling pretty good about the time lines for funding and, I guess, progression along the way. And along those lines, just the commercialization. You all laid out some pretty good guidance on licensing, deployments and things like that, particularly in the late -- latter part of the decade. How you're feeling about that today relative to where you are in the spring?

Yes. Look, I think we feel great about where we are. I think when we take a step back and we look at when we approach NET Power, the thing that was most exciting to us is we knew that this is also going to be a market that comes to us in terms of the market is inevitably going to have to change because there is going to be real value in having that future effect, as we call it. And so you're seeing new regulations being proposed that quite frankly, would be beyond transformative to NET Power. Really, the EPA has proposed section 111 b and d rules on emissions from coal and gas-fired power plants. That in and of itself just transforms the opportunity set. And so yes, focusing on licensing is really, really important. Everything that we really said about the origination piece is equally, if not more important, because I think we're kind of sitting here in a place where I don't think anybody understands the real value, the real power of NET Power better than us. And because we own the IP to this, it gives us a real sense of latitude as to how do we commercialize this, as I mentioned before. So I feel really good. I think it's really hard to put numbers to it as to what the backlog or what the number of licenses that we're going to sell looks like over the next couple of years. We really just today -- are sitting here today saying we know it's going to be really big, especially once serial #1 is on line. So let's make sure we're prepared for that. And I think that's why there is as much of a focus on expanding up the supply chain as we can is because we want to make sure that we're able to meet that demand when it shows up. And then I think like, quite frankly, with the EPA's new rules, I think we're going to need to be there with the supply chain to be able to meet that sort of demand because I think, quite frankly, it's going to be one of the only hopes we have to be able to achieve the 90% CO2 capture that they want to see from all thermal power plants by 2035, right? So I mean, we're really in this thing for -- I'm in this thing for the long haul for the next 20, 30 years. And we're really just designing the company accordingly. And we're in a fantastic place financially with liquidity that we don't need to necessarily be so worried about selling licenses tomorrow to keep the lights on. We have more than a [ 4-year ] runway to really start to hit our stride on commercialization of this technology. And so it's just really, really important, and I really just can't stress this enough to everybody that we have a lot of really important work that we're doing on really developing and improving the technology utility scale that is really going to unlock that backlog that we're going to be building over the next couple of years, and it's really allowing us to take advantage of that supply chain, we're going to be standing up over the next few years. So really, really excited to start talking about orders, start talking about backlogs, and there's certainly more to come in the quarters ahead sharing those good news.

There are no further questions at this time. I would like to hand the call back over to Danny Rice for any closing comments.

Thanks, everybody, for joining us today. It's not every day that public investors have a front row seat to see the development and commercialization of a breakthrough technology like this, most of the time it occurs behind the scenes of a large company or within a private one. But this technology, it's so important to broadcast this one to the world even at this stage. And we're really looking forward to bring you along on this journey as we develop our technology, build the backlog and build up the supply chain to transform natural gas into that energy trifecta. So thanks again for your support, and we'll see you all again next quarter.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.