For over three years, NuScale Power (SMR +0.76%) has enjoyed the first-mover advantage of having a small modular reactor (SMR) with Nuclear Regulatory Commission (NRC) certification.
What's been missing from NuScale's story, however, is a customer committed to deploying commercial reactors. For NuScale investors, the good news is that this gaping hole in NuScale's business could soon be closing.
Last year, the Tennessee Valley Authority (TVA), America's largest public utility, and ENTRA1 Energy, NuScale's commercial partner, announced plans to deploy up to 6 gigawatts (GW) of NuScale's SMR technology. The deployment program calls for building six large-scale "Entra1 Energy Plants" across TVA's seven-state service area, with each plant served by 12 NuScale Power Modules, for a total of 72 modules.
This program would make the largest SMR deployment in U.S. history, not to mention the first large-scale commercial validation of NuScale's technology. Its development could be a game changer for NuScale stock. But before we get too enthusiastic, let's look at the fine print.
Image source: The Motley Fool.
The deployment program doesn't guarantee anything yet
It would be easy to punctuate "72 reactors" with a flurry of exclamation marks. Surely, it's an important development, but the details of this agreement are just as significant to consider.
The most important thing is that this deployment agreement isn't a construction contract, as if TVA were committing itself to buying electricity from 72 reactors on the spot. Nor does NuScale have 72 modules manufactured and ready for deployment (according to its website, it's in the process of manufacturing 12).
The 6 GW deployment program is non-binding; in other words, any side of this triangulated relationship could walk away without risk of penalty or breach-of-contract lawsuit. The agreement is a collaborative one, and until it turns into a binding commercial agreement, the generation of any future revenue from it for NuScale isn't written in stone.
Another point to consider is ENTRA1's role with respect to NuScale. Under the companies' partnership milestones agreement, ENTRA1 is NuScale's commercial partner, while NuScale is the key supplier to ENTRA1's SMR projects. In the most basic sense, ENTRA1 develops and oversees SMR projects, while NuScale supplies the SMR technology. They complement each other and, over the long run, could prove fruitful for both energy companies.
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Key Data Points
But that's not the point I wanted to make. The agreement obligates NuScale to make milestone contributions to ENTRA1 in connection with projects. For example, if TVA and ENTRA1 sign a power purchase agreement, NuScale will have to pay roughly $16 million per module included in the agreement. If that's 72 modules, that's $1.15 billion.
NuScale has already incurred a $495 million milestone payment to ENTRA1 connected to the non-binding partnership milestones agreement with TVA. So, if the agreement with TVA were to ultimately fall apart, NuScale could owe half a billion dollars without a single reactor deployed.
To sum it up, the 6 GW deployment program could be exciting for NuScale investors, but right now it's still too undefined to be a compelling reason to buy NuScale stock. As I've emphasized in the past, NuScale isn't a stock you buy for security; it's an early-stage nuclear company whose stock will likely be as unpredictable as an electron. Consider it if you can stomach the volatility; otherwise, wait for a binding deal before opening a position.
