NuScale Power Corporation (SMR) Earnings Call Transcript & Summary

Good afternoon, everyone. Moving right along here. My name is Jeremy Tonet, and I cover the Utility & Midstream sectors for JPMorgan Equity Research. We are extremely excited to be joined by NuScale today. CEO, Mr. Hopkins, thank you so much for taking the time, something that's a little bit different than what I think you'll see in the rest of our presentations, but really an exciting glimpse into the future, I think, of power for the U.S. So I think we'll start with some introductory comments to get the audience acclimated working some questions I have. And if anyone in the audience does have questions, we can look to work that in with that.

Thank you very much. Always a pleasure to be at JPMorgan and great conference going on, and I appreciate the invite. Just kind of level set everybody, just a little historical context. NuScale actually originated back in the year 2000 when the Department of Energy had a program called the Multiple Application of Small Light Water Reactors. They approached our current Chief Technology Officer, Dr. Jose Reyes, who is leading the Oregon State Physics and Nuclear Engineering Program. And the challenge they offered him was how safe -- now this is year 2000. Is it possible? And how safe could you make a small modular reactor? And we're not talking about shrinking taking a large scale and shrink it, but take a clean sheet of paper, working with our labs, particularly Idaho National Lab and see what you can do. And that's what they did. 2008 fast forward. They thought there's some commercial applications here because the challenge was all about safety. It was not about commercial. Fast forward to 2012, at that time, I was a Corporate Officer for Fluor Corporation, who's a minority shareholder in NuScale. I got so enthralled with this Dr. Jose's race and the potential and the investment hypothesis in the Fluor board was not about a quick return. It was about should small modular reactor applications come to fruition, 2030 and beyond. And if you look at -- if you look in terms of energy, if you look at needs for clean water, there's some real applications here. So I left the company. I joined NuScale. We built a team. 2013, we got our first competitive award from the Department of Energy. We bid against the big ones, and I thought, quite frankly, that we'll probably be -- the water be split. I got -- this is during the Obama administration. I got a call from Secretary Moniz saying NuScale, you knocked it out of the park, you're sole-source recipient of $226 million to help defray the cost getting to the NRC. And I'll talk about the NRC in a minute because it's like nothing I've ever encountered before. So fast forward again, we submitted our design certification application to the NRC in 2016. We met our schedule in that 42 months to get through the process. Prior to submission, though, we also spent $16 million in what's known as pre-application. So providing data. So once we did submit it, it was the most thorough application at the NRC ever said, according to NRC, and we're also the quickest technology every to get through it. Now when I say that, we are an advanced light water, the regulators all around the world, no light water. So -- but there was a lot of firsts for us that the NRC had never encountered before because they only knew large scale. So as an example, going through that 42 months, we had to prove that we have no need for AC/DC power should there be a trip of the plant. We have no need for operator intervention if we trip the plant. We have no need for AC/DC Power, which is what happened at Fukushima, because we have no peripheral pumps. It's this -- the unit itself really looks like this. This is your core. It's within the containment of 77 feet tall or 70 feet tall, 15 feet in diameter. They're below grade. And each one of these modules generate 77 megawatts electric. So you could put 4 in up to 12. So when you get into 12, you're at 924 megawatts, which is approaching a gigawatt size reactor. So that's kind of the history. And we got $1.5 billion invested. We went through the -- we're on the New York Stock Exchange, our ticker is SMR. We have great investors, we have a great supply chain. We're right now looking to build at 2 plants, one in Romania and one in the U.S. So thank you.

Got it. That's very helpful. If people do have questions, we can look to work them in. After hosting is it 1, 2 or 17 fireside chats on advanced nuclear, we find the topic extremely interesting. And we think that there's really been kind of a change in the country. We hosted a fireside chat with Senator Whitehouse, and we could see how Republicans have been there, but the Democrats looking to get away from carbon, reduce carbon, really see some big mind changes there. Just wondering how you see nuclear fitting into a clean energy economy as far as decarbonizing the goals that we have?

I spend a lot of time on the hill on both sides of the aisle, the Ds and the Rs. Last week, I was on the hill. I think I met with 12 members, both probably equally split between Democrats, Republicans. And the support is there. I think the members have come to the recognition. If we're going to meet carbon goals by 2050 or 2035, decarbonization, clean energy, new nuclear has to be in the mix. Renewables is a great success story, but I do not believe and many of us don't believe you just can do it on the backs of renewables alone. So that energy component, I spoke at COP26, the UN conference on climate and OP27, talking to representatives from sub-Sahara Africa, Central Eastern Europe, and there's -- what the ground cell that's building, it's not so much just about climate disruption. But obviously, with the unfortunate incident in Ukraine, energy security has become paramount for many of these countries.

Yes. No, that makes a lot of sense. And like you said, I think it's extremely important to NREL studies we've seen, given that last mile of decarbonization gets extraordinarily expensive in something like Advanced Nuclear is just so key to economically achieving that. NuScale has -- has achieved so many milestones. But what do you see as key at this point that NuScale has achieved?

Well, a few things. To me, one of the major hurdles because when I came in the industry, there's a lot of negativity, you'll never do this, you'll never do that. You'll never get through the NRC. But we did it, and it was a daunting challenge. And we had approved, as I said, we submitted over 12,000 pages of technical data. We spent hundreds of million dollars. What we came to the realization, we submitted to design [indiscernible] we submitted a 12-module plant and 50 megawatts each module. Scaling up and going through that 42 months process, we've become the realization that same module can actually generate close to 80 megawatts, which really helped the economics, also opens the aperture where we can offer 4, 6, 8 up to 12 of these modules. So we're going through right now with the NRC what's called the power uprate, which is not uncommon. They've had 180 since 1979 with utilities going through it. So we're going through that power uprate to get 77 megawatts approved by 2020 -- within 2024.

Got it. That's very helpful there. And looking at the crowd out there, it seems like there's quite a number of SMR operators out there at various levels of, I guess, commercialization. How does NuScale compare at this point?

Well, let me be very frank here. we need success stories. We need American technologies to succeed. And there's some out there that are progressing very well. You've probably heard about them. It's being a publicly traded company as the only one in the industry is not a good thing. We need metrics. We need comparisons. So I want U.S. technologies overall to be successful and traction and headways being made. I'm hopeful that a lot of what we had to go through, the NRC paves a way for the next ones. Now as it stands right now, none of our -- none of the other American technologies as yet have submitted their design certification application. I think it's coming soon, but they have it. So my litmus test knowing what it took for us to go through, I'm thinking it's going to take a minimum of 42 months where it took us for the next one to get through. The other key aspects of having done that and what I'm seeing right now is that you got most of our opportunities in the United States is coal power plant refurbishments. So one of the -- we had to approve to the NRC -- right now within the U.S., the evacuation zone surrounding a nuclear power plant is a 10-mile radius. We had approved the NRC, which we did at our emergency planning zone because of the safety nature of these modules is that site boundary. So if you have a 12-module plant, that's about 12 hectares, a little over 40 acres of land. Our emergency planning zone, according to the NRC, if it's a NuScale module could be at site boundary. That's huge. Why? And the other thing that we had approved were the only nuclear reactor that does not have to be connected to the grid for safety. So if you think of moving into a remote community that has a coal-fired power plant, a lot of that infrastructure is already there. It doesn't apply to all of them, but a lot of the infrastructure. And when I go talk to these communities, and I'm talking about talking to the communities, I go to the high school and the kids are there and everybody is asking all kinds of questions, anything are you going to boil the aquifer to, hey, we really need you. What they're looking for, they want their jobs. They want to be able to stay in those local communities, generate the tax revenue. They don't want to have to move from wherever because most of these remote communities. So we're working with the North American building trades right now. If you think of a 300 to 400 megawatt plant that employs about 200 people, many of those same skill sets are exactly what I need. One of the first that we had to do that the prevailing knowledge with the NRC was, okay, NuScale, if you have a 12-module plant, you need 12 operators. We were able to prove them and they approve the fact that for a 12-module plant, we only need 3 operators. And many of the skill sets, electricians and electricity in a pipe, there's same skills we need, security. So many of those jobs are absolutely -- in fact, we're devising training manuals right now working with labor. Let me say about labor. We need the labor. If you look at what happened in Vogtle right now, the American Building Trades are out there making it happen. And I come out of the engineering construction business, and it used to be constructors would move wherever the projects are, that's no longer pretty much the case because they have families that they don't want to move. So my belief is -- and the labor also is a big component for training. We need to have trained welders. We need to have the craft availability to make sure that these projects get met on schedule and on budget.

Got it. That makes a lot of sense. It sounds like such a great opportunity for those coal communities for -- if this can come together as you're talking about there. Pivoting a little bit here, I think about NuScale's business development and pipeline going forward. Can you talk about the impact of the IRA and President Biden's partnership?

Yes. The IRA is, for me, helped us level the play in field of renewables. It's not a direct impact on me as a vendor, but it certainly is to our customers. The utilities that we're talking to are -- they have to be in construction by 2032 to take advantage of the tax credits. Here's something else that's very important that I'm seeing happen. So you got the utilities but also there's what I call the industrials, BASF and Shell or ConocoPhillips, they need clean energy, but they need reliable 24/7 energy. So I was speaking at a -- there's a major energy conference every year in Houston called CERAWeek. Meeting with a lot of these companies, their position is, if I'm in Baytown or if I'm in Geismar, Louisiana, I share fence lines with other industrials. So if you could provide me a model where you build on operate adjacent to the fence and you're able to provide me the energy requirements, it could be for steam. It could be for ammonia production. It could be for hydrogen production. We'd be more than willing to provide long-term power purchase agreements. We just don't necessarily want to own a nuclear asset. We need the energy. This also applies to data centers. So we're working with an organization right now that we announced last year, it's called ENTRA1, and they're looking at capital investment and also in operations. So if they had the ability to go in, let's say, to Baytown, Texas, and they were able to build on and you get a legitimate operator, [ Entergy ] or Exelon, somebody like that to operate the plant. We provide the necessary requirements over the fence line. That's going to open the aperture significantly. And that's something we're working on right now and we're hoping to bring to fruition here soon.

Got it. Very interesting. When I talk to a lot of investors about advanced nuclear, they think it's just such a later day of thing. It's a 2030, it's a 2040 thing. I said we had a fireside chat with Dr. Kate Huff of the DOE. She said, "If it's not grid connected by 2029, she's going to buy me a beer. I figure I'm a winner either way, but you guys have projects in motion, could you walk the audience through how that looks?

Yes. We -- again, I'm a technology provider. I'm not a manufacturer nor am I a constructor. I provide the technology. We're going to build these in the factory, they're fungible assets. They don't care where they go. They come in multiple components. And that's why the size is what it is because we've done the analysis. We could put them on rail, we can put them on a barge or a truck for that matter, but we're able to ship them for wherever they need to be. So that's -- and then at the same time, you're building the balance of plant and you react to the civil works as we're building these. So once this is complete, then you bring them in, you set them up and each one of these are independent of one another. So you can literally set one up, get it operational, go to the second one, go to the third one, depending on what the customer wants, if it's 6, 4 or 12. And then when you decommission, they come out 40, 60 years later the same way. They come out. So it's a new novel concept for new nuclear, and that's why I call it new nuclear. And I'm seeing it with the other U.S. technologies. These technologies will work. I think timing is going to be a little different from who goes first, but I have 2 customers right now, they are actually -- one is in Idaho. It's a carbon-free power project with Utah Association Municipal Power. They're in 7 states. They're doing their COLA right now. Project is going well. The second plant and their COD operational date is 2029, we're pouring steel. I was just in Korea, one of our customers -- supplier is Doosan. They're pouring the forgings as we speak right now. It takes a long time. You need long lead items. If you're not ordering long lead items for your plant today, I'm very suspect that you can get to COD by 2029. So the same thing is applying in Romania. It's a coal refurbishment. There's a great commercial for us on YouTube. It starts out with President Biden at the G7 saying, we are going to deploy NuScale Power into the country of Romania, and it segue into seeing a coal facility with the hyperbolic towers coming down or clearing a site, then it moves over, and it shows them building solar power. So they're going to have renewables right next to us. And it's a great -- I mean they did a really professional job. They're doing about 8 months behind CFPP but what they're doing, they're visiting the site where right now they want to take the lessons that we're learning, apply them to their plant. So they can also -- they can both come perhaps to fruition at the 2029 timeframe. Why 2029 because that's when the customer needs the energy. If I needed to get modules out of a factory with my current supply chain right now, I could do it in the latter part of 2027 if a customer needed it.

Got it. Sounds very real time to us happening now. I'm just wondering -- I want to go back to your comment, as you said before, with regards to Ukraine and how that changed people's mindsets. Energy security is taking on a media never has had in recent years. How has that changed potential customer receptivity? How do you think that's impacted the size of the market potential overall?

We actually have a contract with the Ukrainians with Energoatom, which is a utility there. I was on a Zoom call with our energy minister about 3 months ago. And it's during COP27, Secretary Kerry on stage announced they're going to take NuScale and they're going to put it in Ukraine when the timing is right to do so. So what they showed me was a map of where all the substations that have been directed with missiles and drones. They actually have a rapid response team that they send out at night when one of these are hit, they go do as much repair as they can. It's a terrible situation to faced with, but a lot of their infrastructure is done. I mean it's so -- what are they going to need? It's a major rebuild effort when the timing is right to go in. We're hopeful that we're going to go in and help them restore the electricity and the grid, et cetera. So the proofs in the pudding. But God bless them for what they're doing. It's an amazing thing. So -- but what happened there, with that happening, energy security has become paramount with a lot of these countries now. I'm not saying climate disruption is not as important, but energy security is I'm seeing it all over the world, not just in Central and Eastern Europe. We have an agreement. We recently met with President Marcos in the Philippines. They want SMRs. The U.S. government is working with us on feasibility studies in Indonesia. Here's another important piece for me, why supply chain right now. I've got a lot of Korean content that's Doosan, they're a minority shareholder. Samsung, by the way, builds large data centers who needs a lot of energy our minority shareholder. GS Energy out of Korea and DSPE. On the Japan, Japan Bank of International Cooperation, which is a Japanese government entity invested $110 million in NuScale. Why? They want to work with [ XM ] or DFC to help finance NuScale plants. We're also in talking with others. This is where that -- I have 2 legs at a stool, as I mentioned before. I got the technology, I got a delivery mechanism. I want to bring developers in that seize the advantage of financing and helping us get these things in the ground. And when I say in the ground, it's important in this country that we have a success story. We need to get a NuScale module. I don't need an entire plan, I want to get one operational that I can showcase. And the same thing applies with another American technology. We just don't have to do one at a time. Let's get it done. If I can't get in the U.S., it's going to be very difficult for me to go overseas and convince the government or a country. So well, they're not going to do it in the U.S., but you need to be first over here. It doesn't work that way. They want to see in our country a success story. And our government is working directionally that way right now. So we'll see what happens. Yes, sir.

[indiscernible] producer of nuclear feedstock in the U.S. and it's a European country, and most of it, 40% of it, I think, comes from Russia. So the question becomes, do we need to find a new form of feedstock? Or how are we going to be able to produce acceptable levels of nuclear feedstock within the United States?

Great question. We're a conventional fuel. We're not -- we're a light water. Our fuel is less than 4% enriched. So our cores are coming from Framatome, 400 reactors around the world are light water reactors that have fuel. So where the pinch point could come potentially is uranium. And so -- I mean, that's being addressed. But right now, when I talk to my vendor for my first plants, there's ample fuel for mine. Some of the others are having more of a problem to your point, if you're a non-light water where you need HALEU, higher-enriched fuel up to, let's say, 20%, the original construct was to come from Russia. Well, that's not going to happen right now. So as we were at least our -- our Chief Technology Officer, he came out of the NRC, and he perfectly said, because I asked him when I came on doing my due diligence. Why did you stay a light water? He said, John, the regulators all over the world know light water. And he said -- so bringing a new technology, so I thought of thorium, I thought -- I said that could be later state. But right now, I want to stay as an advanced light water reactor. So eventually, uranium but that's being looked at right now. It's not like it's -- right now for -- for conventional fuel, I'm told not to have a problem.

[indiscernible] LEU and they're very expensive. They're not a low-cost producer by any needs.

Actually, from a fuel perspective, the reason we don't reprocess in this country, when people say spent fuel or waste, to me, it's unused energy. We're the only fuel if we wanted to do it, we could recycle a reprocess. And because 96% of the energy is still in that fuel in spent fuel. The reason we don't do it is because back in 1976, President Carter was concerned about enrichment and some bad actors taking advantage. And the other one is the economics really don't support doing it. Now maybe eventually, that will happen. It'd be great if we could reuse that fuel over and over and over, think of any other fuel source, which other one could you reuse the fuel. We can. So the economics for us, it's a very small component of the totality of the project.

Maybe shifting gears here a little bit towards the industrial customers. So I was wondering if you could speak a bit about new scale design and how that can help with the needs with heat or other attributes for industrial customers.

Yes. I don't know how this happened, but there's this prevailing notion that light waters cannot generate steam requirements necessary for process heat for plants. We've proven that. We just did a technical paper presented in Houston, and that's not the case. We can get up to 600c in [indiscernible]. So where that came from, I don't know. But as I commented before, the other area that I'm seeing, people are starting to kick the tires now are, in fact, what I call the industrials or the processor in companies. If in fact, as I mentioned before, if you could be up against the fence line because as you know, the further away you are from a plant that heat dissipates. So the closer you are from a process perspective. So we're actually working with countries and companies right now furthering that along. The other thing we're doing and what we're seeing is hydrogen production. I don't care what color it is, if it's green pink, or whatever, if it's clean energy, it's clean energy. So if you're looking at high-temperature electrolysis with solid oxide and then some innovations, we got a consortium right now with Shell Corporation out of the Netherlands. We've been working on high-temperature electrolysis in hydrogen at INL since 2016. So here's the key. To get it to scale, you need about 400 to 500 metric tons a day at a price point about probably $1.70 to $1.50 per kilogram. If you look at the IRA, there's a component in there, and I think they save $3 per kilogram, but there's money set aside. So hydrogen has been like fusion. It's always been on -- we want it, but there's so much attention right now focused on hydrogen around the world. Somebody's going to figure it out.

Got it. Sounds good. Just wanted to check around the room one more time. I do know we have some nuclear physicist type in the audience. If anyone does have questions, please feel free to ask. But we touched on supply chain a little bit. Is there anything else as part of that conversation that you want to round out?

As I tell my team, we're moving from R&D to delivery. So we're actually hiring skill sets to be able to deliver these plants. If I have any watch out, we need to continue to build out our supply chain around the world. We need to continue to ensure that we don't overcommit. I found having come in this industry for a reason. There's a lot of overselling and under delivery. I don't know why, but it is what it is. I come from a world where you're only known for your last project, whereas they say, one aw-shucks can wipe out 10 attaboys. So for this to work, we've got to make sure that we do what we say we can do. And I'm going to have a shot in building something. And all the negativity I've heard since I've been here, you'll never get on a federal side, you never get to the NRC. We've knocked them roadblocks down. Now what it is, can you be cost competitive.

Got it. That's helpful. Thanks. I think we do have a question here.

I was curious on how do you see enrichment in the U.S.? And do you think that the NRC will approve one of the plans to go forward within maybe the next decade?

For the higher assay HALEU fuel?

I mean even for light water reactor enrichment?

My answer is, I think the government gets it. I mean, there's a lot of pressure on right now because I mentioned 2 of the technologies that are out there, they need high assay fuel as they call it, HALEU. And Centrus is a company out there that has enrichment capabilities, also Urenco in New Mexico. So it's not going to be cheap. It's going to take time. But from everything I've heard the government stands behind, we got to have that energy source, and it's to be seen. But I think within the house mark that just came out, and I think tomorrow is the full appropriations, I think there's money in there for high-assay HALEU fuel as well. So my short answer is I think the government is well aware and they also know they want to get these technologies deployed, so it's going to happen.

Do you think that will be down blending? Or do you think that will be enriching up to...

I don't know how they're going to do it. I don't actually know what the process is myself because I don't need it.

So I think we're down to just our last couple of minutes here. I don't know if there's any parts of the NuScale story that we didn't touch on that we should or final thoughts you want to share with the audience?

I would just say that what I'm finding -- my company right now is over 600 individuals, predominantly engineers. 40% -- more than 40% are under the age of 40. I have a lot of Navy nuclear who come with the experience of understanding natural circulation, which is what we are. And it's kind of like when I go on to Hill, the support from the Ds has been amazing, the support from the Rs, maybe for different reasons. The Ds are absolutely oriented to climate disruption to climate, Rs are more oriented to resiliency, reliability and asset security. But the fact that it is, they know we need new nuclear. And so that, for me, it's getting one of these modules, as I said, in the ground operational is my next big to do, and it needs to happen. So if I could do it, 2029 is my COD. I've ordered equipment. It's -- I got 2 card contracts. We've had our companies -- we have 5 classifications and contracts for customers. Tier 1 is you actually have the contract in place and they're paying you money. I've got 2 of those, I'm focused on getting a third and the fourth.

Got it. Sounds great to us. We wish you the best of luck.

Thank you.

Very important stuff, and thank you again.

Thank you. Appreciate it.