NuScale Power (SMR 5.13%) develops small modular nuclear reactors and has a key first-mover advantage with its nuclear energy technology. The stock surged over the last year, reaching $57 per share in October, but has cooled off significantly in recent months. With the stock now under $15 per share, is NuScale Power stock a buy? Let's dive into its outlook to find out.
NuScale Power's NRC approval gives it a first-mover advantage
The nuclear industry operates some of the most stringent and rigorous frameworks to demonstrate safety and secure government approval. NuScale's biggest advantage right now is that its NuScale Power Module is the only small modular reactor with a standard design approval (SDA) from the Nuclear Regulatory Commission (NRC).
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NuScale has two designs approved by the NRC. The first is for its 50 MW power module, and the second is for its upsized 77 MW module, introduced to be more cost-effective. It took the NRC 3.5 years to review its design and approve it, giving NuScale an important first-mover advantage over other next-gen nuclear reactor developers. With its SDA, NuScale has validated its safety features, showing that it is passively safe and does not require operator action to cool the reactors.
Investors will want to pay attention to any regulatory changes. For example, the NRC is finalizing Part 53, a technology-inclusive licensing framework for advanced reactors. This would provide greater flexibility, enable developers to demonstrate safety using their own unique metrics, and significantly reduce the time to approval. The final rule must be finalized by the end of 2027, although some estimate it could be finalized this year.
The financial cost of its growing business
NuScale has a first-mover advantage in NRC certification, but some risks to watch are the cost of its technology and the risk of locking in firm customer commitments. Its first project, the Carbon Free Power Project, suffered from numerous cost overruns. To mitigate this risk going forward, the company has entered into a partnership with ENTRA1 to help it develop and finance its small modular reactor power plants.
Partnering with ENTRA1 removes the massive up-front capital and construction risk from the end customer (the utility provider). ENTRA1 serves as a project developer, handling design, construction, and financing, while allowing NuScale to remain asset-light.
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However, the agreement places a significant burden on NuScale. NuScale paid $495 million to ENTRA1 Energy as a milestone payment triggered by the signing of a non-binding agreement with the Tennessee Valley Authority (TVA) to develop up to 6 gigawatts of new nuclear power. Analysts at BNP Paribas Exane estimate that NuScale could pay as much as $6 billion over the next 15 years under the agreement.
NuScale has a long road ahead
NuScale's small modular reactor technology is promising, and it does have an advantage as a first mover with its SDA certification. However, its partnership with ENTRA1 is costly and could be dilutive to shareholders. On top of that, it will take several years before it even deploys its first NuScale power plant.
The stock is very risky right now, and most investors will likely want to avoid it until it secures more firm commitments and gets closer to operational readiness.
