Energy demand is set to explode over the next few decades, driven by growing populations, developing emerging market economies, and the widespread integration of artificial intelligence. In response to carbon reduction goals, companies are undertaking intriguing projects to address the escalating energy demand.
Small modular reactors (SMRs) are an exciting technological advancement in nuclear power generation that could revolutionize how we use nuclear energy. SMRs are flexible and adaptable and could provide energy to remote areas, industrial plants, or data centers that power artificial intelligence. They also offer potentially lower upfront costs and the efficiency of nuclear power, and NuScale Power (SMR -0.28%) is one company developing this technology.
NuScale surged 443% from early March through mid-July, when it peaked at nearly $17 per share, but has since fallen over 54%. With the stock trading below $10 per share, is now the time to invest in the energy company?
The promise of small modular reactors
Since 2007, NuScale has been developing its SMR technology and has invested nearly $1.8 billion. What makes SMRs appealing is that they use nuclear energy to provide up to 77 megawatts of electricity (MWe). Not only that, but the modular design also allows for a scalable plant that can accommodate up to 12 modules supporting an output of 924 MW.
This modular design means the SMRs can be manufactured at NuScale's plant and transported to the site for assembly, potentially reducing construction costs and the time it takes to bring a plant up to operation.
SMRs are also incredibly flexible. They can provide carbon-free energy to remote areas that may not have a power grid infrastructure and stand-alone energy for industrial or data center facilities. With data center energy consumption expected to grow from 3% of U.S. power demand to 8% by 2030, SMRs could be a key component in helping companies meet their carbon-neutral goals.
NuScale's SMRs have generated buzz. Last year, Standard Power announced plans to develop two SMR-powered facilities in Ohio and Pennsylvania that will produce 2 gigawatts of clean energy to power nearby data centers.
Image source: Getty Images.
It hasn't been smooth sailing for NuScale
Last November, the Utah Associated Municipal Power System (UAMPS) terminated its agreement with NuScale for its Carbon Free Power Project. First announced in 2015, the project would have involved the construction of 12 reactor modules to generate up to 600 MW, and the plan was to have it up and running by 2023.
The termination revealed the high costs of SMRs and showed how difficult it could be to get the technology up and running. Initially, the project was estimated to cost around $3 billion. That rose to $6.1 billion in 2020 and $9.3 billion in 2023 and just became too expensive for UAMPS. As a result, NuScale's first planned operational SMR plant went up in smoke, and it had to take a $50 million charge as a result.
NuScale boasts that it is the only company to receive a Standard Design Approval from the Nuclear Regulatory Commission. However, one thing to keep in mind is that this is for its 50 MWe modular reactors and not its current 77 MWe reactors. The company expects this version to be approved by July 31, 2025.
Keep an eye on NuScale's cash burn
NuScale Power's technology offers exciting potential and could benefit from growing energy demand over the next several years. Its modular design suits small communities, data centers, or other industrial customers, making it an intriguing investment opportunity.
However, investors must bear in mind that NuScale is a money-losing operation. Over the last three years, the nuclear energy company has invested heavily in research and development and is still very early in developing a commercial product. Over the last 12 months, NuScale's net loss is $82 million.
SMR Net Income (Quarterly) data by YCharts
Management estimates NuScale's quarterly cash burn rate to be around $20 million. Currently, the company has $130 million in cash and equivalents on hand, or a little over six quarters' worth. However, if NuScale continues to lose money, it may have to raise capital through debt or equity, which could further dilute shareholders.
Is NuScale right for you?
While getting customers like Standard Power to sign on is exciting, they remain potential customers, and anything could happen, as you can see with its terminated deal with UAMPS.
The company is still a ways off from commercial operations and still has to wait for approval of its updated reactors. Given NuScale's unpredictable path to profitability, most investors are best off staying on the sidelines and seeing how things develop before investing in the energy company.
