Where Will NuScale Power Be in 1 Year?

NuScale Power (SMR 0.63%) is confident that it is leading the way in the development of small-scale nuclear reactors, known as small modular reactors (SMRs). There are significant reasons for this belief, and it carries important implications for potential investors.

Over the next year, NuScale will enter a crucial phase in its journey, even though it will not have sold any reactors during this period. Here’s what current and prospective investors should pay attention to regarding NuScale Power.

Understanding NuScale Power

Previously, NuScale’s focus was primarily on research and development (R&D) as it aimed to launch the first commercially viable small-scale nuclear reactor. SMRs are appealing for several reasons. Their smaller size compared to traditional nuclear reactors allows for lower construction costs. Furthermore, the advanced technology used in SMRs enhances their safety profile. They can also be strategically placed nearer to large population centers, which is an advantage over larger plants.

The potential demand for SMRs could be enormous. NuScale estimates that power requirements could skyrocket by up to six times in the next two decades compared to the previous 20 years. Nuclear power, known for its clean energy output, is expected to be a critical element in the evolving energy landscape. Given the versatility of SMRs compared to larger nuclear facilities, there is a likelihood of increased demand for this technology.

The management team at NuScale believes they are years ahead of competitors. Their technology is built on established standards, while many rivals are attempting to develop completely new technologies. NuScale’s plan incorporates existing supply chains for key components, such as fuel. Additionally, competitors using scaled-down versions of current technology have not made as much progress in the regulatory approval process as NuScale has.

NuScale often emphasizes that they are “the only small modular reactor technology certified by the U.S. Nuclear Regulatory Commission.” This certification is a significant achievement because it is a lengthy process, and it positions NuScale favorably against those companies aiming for novel technologies, which could be a decade away from market readiness. The goal for NuScale is to have a plant operational by the end of the decade.

Anticipated Developments in the Coming Year

As we look toward 2025, which is still four years before the decade concludes, investors should temper their financial expectations. Nevertheless, a notable change occurred in 2024 as NuScale shifted from an R&D focus to concentrating on commercialization.

In the fourth quarter of 2024, the company successfully reduced its operating expenses by 40% year-over-year. This trend of lowering expenses is likely to continue, helping to manage cash outflow better.

Regarding finances, the company completed a conversion of warrants at the end of 2024, leading to an increased share count, which diluted existing shareholders but provided approximately $200 million in cash. This injection of cash will enhance the company’s financial stability, though it is crucial to continue monitoring cash burn rates.

Currently, NuScale is preparing the groundwork for six reactors in its pipeline while simultaneously working on securing long-lead-time components. Discussions with prospective clients have fueled confidence, prompting orders for an additional six SMRs. While they have a potential agreement for the first six SMRs, no contracts are signed for the subsequent six, resulting in expenditures ahead of actual demand.

Key milestones to monitor in the next year include anticipated regulatory approvals for NuScale’s upgraded reactor designs around mid-2025.

The most crucial anticipated event is the final investment decision for a power plant in Romania, which is set to utilize NuScale's initial six reactors. This decision is expected to occur towards the end of 2025 and could serve as a significant turning point for the company. If approved, it would mark the onset of commercializing NuScale's SMR technology.

The Need for Effective Execution

The next 12 months will essentially determine whether NuScale Power has a viable commercial idea or merely a promising concept. The management must perform exceptionally well across various aspects to realize this potential. In one year's time, NuScale could emerge as the clear front-runner in the SMR market, giving it a crucial competitive advantage.

This high-risk stock is not suitable for every investor. Should unexpected issues arise, such as rapid cash burn, inability to secure essential regulatory approvals, or lack of support for the Romanian project, the outlook for NuScale Power could become less favorable.

NuScale, energy, investment