NET Power Inc.

Hello, and welcome to the NetPower, Inc. first quarter 2024 earnings call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bryce Mendez. Please go ahead.

Good morning, everyone, and welcome to NetPower's first quarter 2024 earnings conference call. With me on the call today, we have our Chief Executive Officer, Danny Rice, our President and Chief Operating Officer, Brian Allen, and our Chief Financial Officer, Akash Patel. Today, we issued our earnings release for the first quarter of 2024, which can be found on our investor relations website, along with this presentation at ir.netpower.com. During this call, our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I'll now pass it over to Danny Rice, NetPower's Chief Executive Officer.

Thanks all for joining us. We're going to reference several slides in the investment presentation we posted to our website, and I'd encourage you to have those handy. To summarize where we are today, development remains on track for our utility scale product. Development remains on track for our first project. Our total addressable market is expanding faster than we expected, and government policy is evolving in our favor. Brian will provide an update on product and project development, but first let me share some thoughts on the macro. Society's paramount need for the next century is to implement scalable energy solutions that can provide clean, affordable, and reliable power, a trifecta that remains elusive in current offerings. Despite the enormity of the prize at hand, only a handful of emerging solutions hold the promise on delivering on these fronts, and net power really stands out among them. Diving into the US in particular, the expected deficit between future power supply and future power demand continues to widen as load growth, primarily from data centers in the electrification of everything, is outrunning supply growth, which we think will move forward power prices significantly higher. In a free market, higher prices would induce new supply, primarily from coal and gas power plants. But what makes this situation really interesting is that the EPA recently finalized its Section 111B and D emission rules for coal and gas power plants. To summarize the rules, all coal plants must capture the equivalent of 95% of its CO2 emissions by 2032, and all new baseload gas plants operating more than 40% of the time must begin capturing 90% of its emissions by 2032, while existing gas plants will be addressed down the line as EPA gathers more inputs. These emissions rules raise the bar for the industry. We think it's one that our power plants will handily meet. As we think about positioning versus post-combustion carbon capture solutions, our oxy-combustion based plant will be likely the best way to comply in load following mode. That is, we're capturing over 97% of CO2, whether we're at partial or full output. When we pair the EPA rules with the IRA incentives, It positions net power to become the lowest cost form of marginal baseload power in markets with access to CS2 storage. And as a reminder, approximately 80% of US thermal power generation today is above or near world-class carbon sinks. And I think Ralph Waldo Emerson said it best, if you build the perfect mousetrap, the world will build a beaten path to your door. And for that reason, we need to be ready for future demand and it's why we're preparing our supply chain for significant manufacturing scale-up by the early 2030s. Turning to the origination side of the business, we submitted our MISO interconnection application for OP1, our first net power originated project. This marks a critical first step in improving reliability in the grid system, and we look forward to working through the interconnect process with MISO. So while OP1 continues to advance as we intended, We're in active dialogue with prospective partners on additional origination opportunities across other competitive power markets, including PJM, ERCOT, CAISO, and the Alberta system. We continue to have active dialogue with a cross-section of companies across the oil and gas, power, data center, and industrial sectors, along with infrastructure capital providers that are interested in financing our regional origination hub programs. And last but not least, I'd like to thank our team for their hard work. NetPower is approximately 60 full-time employees, plus another approximately 200 full-time resources across our various investor and supply chain partners are doing everything they can to make NetPower a commercial success. I'd like to commend this team and our partners for a great job maintaining an aggressive schedule to develop and deploy our technology. It's not easy, but they're finding ways to get it done, and I think it's important for our shareholders to see this. I'll now hand it over to Brian to give an operational update.

Thanks, Danny. Turning to slide 10 in the presentation, the team continues to make steady progress on site upgrades to our LaForte demonstration facility in preparation for our four-phase validation campaign with Baker Hughes. It is an exciting time at the site as our team is busy making control system modifications and installing new equipment, structural steel, electrical cable, and piping. all in preparation for near-term testing. On our last call, I presented this slide, and I will revisit key points before going into more depth on how this campaign will de-risk the utility-scale deployments. The report demonstration facility was developed to prove the concept of the net power cycle, which we did when we synchronized to the grid in 2021, and to test key equipment such as the turbo extender. The upcoming testing report will focus on validating and de-risking the Baker Hughes Utility Scale Turbo Standard and how to optimize its operation within our cycle. The campaign will follow four primary phases and will continue for 2026. The first phase of testing report focuses on the Turbo Standard Burner, which is where combustion of natural gas and oxygen takes place in a CO2 environment. We will test multiple OxyFuel burner configurations, and Baker will select the best burner heading into the next phase. We expect to begin Phase 1 testing in Q4 of this year. The second phase of testing will take the selected OxyFuel burner from Phase 1 and test it along with a combustion liner and other hardware to form a single demonstrator-sized combustion can. This testing will allow us to optimize combustion in full-apport demonstration conditions. The third phase of testing will involve scaling the demonstrator-sized combustor can from phase two to a utility-scale can with clusters of burners, and then testing it with the goal of learning and optimizing the design of the utility-scale combustor that will operate at Project Permian and beyond. The fourth and final phase will test the full demonstrator turbo stander, including the validation of materials and design architecture used on the turbo stander for Project Permian. Baker Hughes and NetPower will use this testing to tune our analytic and performance simulation models with the acquired test data. We will confirm the demonstrator turbo standard and overall cycle operability and dynamic capability. All of this will allow us to confirm the overall demonstration plant cycle design and plant control system integrated with the Baker Hughes equipment, ensuring that we minimize residual risk of the first of a kind prior to Project Permian initial operations. Turning to slide 11, I will explain how the validation campaign at LaForte de-risks our utility-scale deployments. The key new enabling technology being validated at LaForte is the Baker Hughes TurboStander integrated into the Net Power Cycle. As part of our joint development program with Baker Hughes, the LaForte Demonstrator TurboStander and utility-scale TurboStander are both being designed by the same engineering team and manufactured in a nearly parallel fashion. The Laporte demonstrator turbo stander is a reduced-scale version of the utility-scale turbo stander with a flow path sharing the same design philosophy. It has similar design architecture, materials, and maximum operating pressure and temperature. Both the Laporte and utility-scale turbo standers will share the same combustion burners, although with a different quantity of burners and combustion cans to accommodate an 11-time difference in thermal energy inputs. Both will also share similar operating characteristics in terms of the way the machines are started, ramp up in power, synchronize to the grid, follow load and dispatch commands from the plant operators, and then shut down. In short, its similarity in design and operation allows Baker Hughes to gain the most benefit from our existing demonstration facility. So what does all of this do for the utility scale plants? It allows NetPower to begin initial operation of the first plant, Project Permian, having already gained real data to optimize the plant design, tune our cycle performance models, and update the plant control system. And it allows Baker Hughes to gain significant lessons learned, improve their turbine controls and operability, and make any other final modifications, if necessary, based on the validation campaign results. Overall, it's an incredible opportunity to de-risk Project Permian. Next, I will turn to slide 12 for an update on Project Permian. The project remains on schedule with initial power generation expected to occur between the second half of 2027 and first half of 2028. Our key upcoming 2024 milestones are highlighted on the slide. We are advancing our front-end engineering design, or FEED, with Zachary. Year-to-date, we have completed our initial sets of heat and mass balances, process flow diagrams, and our piping and instrumentation diagrams. Together, these deliverables complete a pivotal step that defines, at this stage of the project, the primary equipment and materials required, including compressors, pumps, heat exchangers, measurement instruments, valves, piping, and so forth. Zachary has been advancing the overall plant 3D layout in parallel and can now proceed towards finalizing the feed stage plant design. They will then firm up their equipment quotes and their quantification of total pipe, electrical cable and wiring, structural steel, concrete, et cetera, and the cost to construct them. Utilizing all of this information, Zachary will finalize their open book estimate by the end of the year. To maintain the project schedule, we will continue to order long-lead components throughout 2024. We are currently out to bid on the major plant generator step-up transformer and switchyard circuit breakers and expect that their manufacturing lead times will support our project schedule. We have also progressed our generation interconnect to the final interconnection study phase. Regarding the air separation unit, or ASU, we have made great progress on early engineering. Together with our ASU provider, We have made process and equipment selections and are entering a feed phase with them shortly. We have done a lot of work on logistics analysis to ensure we have the ability to transport components from port locations on the Gulf Coast in Texas to the Midland Odessa region. With that, I'll pass it off to Akash for the financial updates.

Thanks, Brian. NetPower continues to prudently deploy our capital, ending the first quarter of 2024 with a strong balance sheet, including approximately $625 million of cash and investments. Consistent with the past several quarters, the current interest rate environment has allowed us to put our balance sheet cash to work to materially offset our corporate spend. In the first quarter, our cash flow used in operations was approximately $3 million, which included a cash payment of more than $3 million under the Baker used JDA. However, this high interest rate environment won't last forever, and we expect cash flow use and operations to continue increasing as we build out the organization, progress the joint development program with Baker Hughes, and ramp up activity at LaPorte. For the quarter, our total capital expenditures were approximately $10 million, comprised of approximately $6 million of capitalized costs associated with the ongoing project Permian development activities, and approximately $4 million spent on LaPorte modifications, and upgrades ahead of testing that is expected to begin in the fourth quarter of this year. NetPower's fully diluted share count was approximately 248 million shares as of March 31, 2024. This was comprised of approximately 214 million Class A and Class B vested shares currently outstanding, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, which, if cash exercised, would give NetPower an additional $225 million of cash, 1.7 million shares subject to earn-outs or vesting requirements, and approximately 13 million authorized shares, issuable pursuant to the Baker Hughes Joint Development Agreement. For a detailed breakdown of our share count, please refer to our annual and quarterly financials on file with the SEC. That concludes our prepared remarks. I'll now pass it back to the operator to open up the line for Q&A.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Once again, that's star one to be placed into question queue. Our first question is coming from Martin Malloy from Johnson Rice. Your line is now live.

Good morning. Thank you for taking my question. The first question was around the interconnection filing. Can you give us any more information about the geographic location or if there's a filing associated with that for carbon sequestration and maybe the timing of that filing?

Hey, Marty. It's Danny. Good to hear from you. In terms of specific location, we're not disclosing that yet just for competitive reasons, but like we've said in the past, it's in the northern MISO region. MISO goes all the way from Michigan all the way down to Louisiana and everything in between, and it'll be in the northern section of MISO. It'll ultimately get out there publicly once the filing is accepted by MISO, and we're proceeding into the next phase of the interconnect. And then on the subsurface side of things, our partners and I will be looking at filing class six sequestration permits in 2024. So I think when we fast forward three or four years, we'll have class six permits and we'll have the interconnect into the Northern MISO system. So everything's kind of going according to plan up there and We couldn't get that power plant on soon enough. You know, that northern MISA system really, really needs clean baseload power, probably as much as any other system in the country.

Okay. Thank you. And for my second question, just wanted to maybe see if you could provide a little more information about recent customer conversations. And you started off the prepared remarks talking about the total addressable market increasing faster than expected. And with the press reports about the need for additional power for data centers and reshoring manufacturing, et cetera, can you maybe talk about the nature and the types of customers that you're having these conversations with?

Yeah, it's, you know, it's been the same type of companies over the last few years. You know, we've been talking to the tech companies for a while. You know, they have a growing need for baseload power for their data centers. So those conversations I wouldn't say are necessarily new. They're just now picking up as they're really starting to look at almost needing to start to procure power, like going to the source of generation rather than just being an active participant in the open market in the grid systems. I think everybody is now starting to realize baseload reliable power has gone from being an abundant low-cost commodity to now becoming a pretty sacred resource. And that's really only kind of transpired over the course of the last few years. And then I think when everybody looks ahead with just the clean ambitions that we have at the EPA and across most states, there's really no such thing as clean, affordable baseload today. And so folks are starting to pay a lot more attention to those potential solutions that are being developed that give you that energy trifecta. So we're seeing a bunch from the Tuck folks, but we're also seeing it from the utility industry and just the power industry in general, who have obviously been the primary customers and custodians of these type of generating assets. And the shortage of power that we're seeing on the tech side for data centers is is even greater on just the broader grid system where you see these system operators across MISO, PJM. Heck, even ERCOT is now saying by 2030 we're seeing a 30 gigawatt shortfall in peak summer power demand, which is a little bit amazing since Texas is what I think all of us would say is probably the most abundant place for power generation. They're seeing a significant shortfall too. We're kind of seeing it across the board in terms of folks' interest in net power. And so I think with all of these inbounds, I think where it's really pointing us to is once our first plant is online, I think that's when we have an entirely new pathway to generate low-carbon power. That's baseload. That's affordable. And so I think one of the things that Brian and his team on the operational side, particularly on the supply chain side, is focused on is After the first plant comes online, how quickly can we scale up into full-scale manufacturing mode where we're able to produce dozens of these plants per year? So it's a pretty ambitious but quite realistic opportunity for us just because the demand that we're kind of seeing knocking in our door post-serial number one is it's unlike anything that I think the power industry has seen before, but it's certainly one of the underlying reasons why we said It's really, really important we get net power public. We extend the public profile of the business, but we also capitalize the business and align it with long-term shareholders that see the vision and see the potential and can help us capitalize this to capture that market that's coming our way.

Great. Thank you very much. I'll turn it back.

Thanks, Marty. Thanks. Next question is coming from Leo Mariani from Rothkamp Cameraline. It's not live.

I was hoping to expand a bit on the customer discussion here, just specifically with respect to OP1. Have you guys actually kind of engaged a counterparty that's committed there, or is this still something that NetPower is kind of funding in the early stages and sort of progressing, and maybe there's some conversations about, you know, getting somebody to step into that actual role? So maybe just kind of talk about that kind of OP1, I guess, project number two.

Yeah, sure, Leo. And it's still to be determined if it'll ultimately be serial number two or serial number three. I think that's one of the flexibilities we have around the originated projects is it gives us total creative control over not just the timing of the project, but also what critical strategic stakeholders do we want to bring into this project? Because I think the way we're really envisioning this project is it's not just a one-off plant, right? I think the area that we're targeting And the market that we're targeting is much larger than just one plant. I mean, we're talking about a market that could accommodate 20 to 40 net power plants. And so as we look at just partners and strategic partners, we had a slide in one of our earnings decks a few quarters ago where we kind of listed out all of the various stakeholders that we would want to bring into these consortiums. And it ranges from the utilities that are in the area. It is not just like the local government and the local landowners and the stakeholders at the community level. but it's the infrastructure capital providers. There's going to be really cool opportunities to be able to start looking at co-location of data centers for some of these plants, whether it's OP1 or OP2 or OP3. And so I think one of the real neat benefits of just this origination strategy is it gives us a lot of just creative latitude over what other strategic partners do we want to bring into these hubs? Because while I think at the center of that hub, net power is powering it, But there's a whole lot of stakeholders that really benefit from having that clean, affordable, reliable power, either for the grid or for their behind the meter solution. So we're in the early days of really, you know, setting out what are the strategic stakeholders we want to have in this northern MISO hub. But I would imagine it'll be different and really catered for each market where we start to establish these origination hubs.

Okay, I appreciate that. And then just wanted to follow up quickly on the cash burn that y'all were talking about. I think Akash, you kind of referenced it, might be accelerating a bit here in 2024. Can you maybe just kind of speak to any of the, you know, components of that? You talked about kind of 10 million in CapEx in the first quarter. It's like some of that was, you know, 6 million capitalized, 4 million actually spent. But, you know, how do you see that kind of progressing, you know, for the rest of the year? What type of CapEx do we see? And is that going to be the primary component of the cash burn? Do you expect, you know, I know interest rates could fall, but assuming they stay steady, do you think kind of the interest on the cash balance kind of handles the internal sort of G&A?

Yeah, thanks Leo. Yeah, you're spot on there. So, you know, two components. On the cash burn from operations, this quarter we were at roughly $2.7 million of cash burn, but that includes our cash payment under the Baker Hughes JDA. which was approximately 3.7 million. So if you back that out and you back out the cash interest received and you just multiply by four for a run rate annualized figure, the cash burden from operations is roughly $40 million right now. And that's being covered pretty materially by the cash interest received. Now, as interest rates come down and we actually start spending money on the CapEx side, you'll start seeing that accelerate a little bit. But very fortunate that we overcapitalized the balance sheet. We continue to be pretty prudent on how we build out the business to ensure that we've right-sized our capital plan. On the CapEx side of the house, When we overcapitalized the balance sheet on the GoPublic transaction, we said that roughly $200 million is our first dollars into the project. to ensure that um you know we continue releasing long leads etc now we're in active negotiation um with several of the long lead uh providers and so we haven't really said when that cash will go out the door um obviously payment terms are incredibly important and we'd like to keep that cash as long as we can but you can expect that to come through over the next call it year The pace of which, you know, it will be backed up later for this year and then hopefully we can get some pushed out. But still a little early for us to say when exactly on a quarterly basis that will accelerate.

Okay. Thank you.

Thank you. Next question today is coming from Thomas Merrick from Jana Montgomery. Your line is now live.

Good morning. Thanks for the time and thanks for the questions. On supply and demand, I'm curious your thoughts about the next couple of years, and I want to dive into ERCOT, but I think this is related to all the RTOs, but specifically just kind of thinking about load growth, the need for dispatchable generators, the EPA rule, and just the general underwriting of risk to build a new dispatchable resource. So the question is really just how do you see the supply and demand of generators in the next few years, specifically, you know, dispatchable assets.

Yeah, no, I think Thomas, I think that's, that's like the billion dollar question. It may even be trillion dollar question at this point. I think, you know, when, when you kind of heard us talking over the course of the last few quarters about just the underlying thesis for net power, it was really like through the lens of, This, we have a grid system where we've really under-invested in baseload assets over the course of the last decade, you know, really since the shale revolution and natural gas replacing coal power done in the country, you know, we we've really seen this under-investment in baseload dispatchable assets and more of an over-investment into the renewable assets. Um, and so we're in this real predicament now where we have the system operators saying, Hey, by the end of 2030, We're seeing all these decommissioning notices of baseload plants that are just aging, that are underutilized, that are uneconomic, looking to come off the grid system. And we have a real problem because nobody's backfilling with new baseload power generation. And so this is all like all of this stuff kind of predated the new load forecasts for data centers and what the data centers aspire to do. And so when you kind of start to add that on top, you start to see problems start to just shortfalls really start to emerge quite quickly. And so then, you know, we have the EPA rules, which are saying, hey, look, if we want to actually decarbonize, we really need to find ways to reduce emissions from coal and gas power generation. So we totally agree with that sentiment. That really is like the other basis of net power was if you really want to decarbonize the grid, you really need to find a way to capture CO2 from coal and gas power generation. not to make coal and gas power generation go away, but just make the emissions go away. And so that was really the mission that NetPower is on is to find ways to decarbonize the grid. So that's, that's happening. And that will happen before, you know, before too long. I think the real question is, is dispatchable power going to be able to ramp up to meet just the load growth that we're going to be seeing on these grid systems, knowing that that load growth needs to be met with dispatchable baseload power generation that's affordable. Otherwise, that load's just not going to get met by the supply. And so that's going to be like the billion-dollar question is, are we going to see new baseload, which, you know, at this point are just, you know, natural gas, combined cycle, simple cycle facilities built in the face of the, you know, the EPA regulations that are coming down the pike that the EPA has finalized? I'm sure it's going to be highly litigated. But I wonder, is that going to have a chilling effect on folks wanting to build to meet that load growth that we're going to be seeing? I don't know. I think it's anybody's question. But I think that the EPA has made it clear that they want to see lower carbon solutions making its way onto the grid system. So I think, if anything... This should send a signal to the market, to the investment community, that we need to continue to accelerate the investment in low-carbon solutions. And guess what? What the EPA is really trying to say through this ruling is we need you to find ways to accelerate the deployment of baseload dispatchable power generation that's focused on natural gas. Because I think everybody unequivocally agrees the only way we're going to be able to scale to meet this load growth is going to be from natural gas. It could come from coal, but coal's kind of really working its way out of the system completely. And it's really just being replaced by gas. And so I think the only way that we're going to be able to see us meet this load growth is going to be from natural gas. And it's really going to become a question of, is the EPA going to relax its rules a little bit more? Or are we going to see the industry step up and put a lot more capital into really cool solutions like net power that have demonstrated we can generate clean power from natural gas? What we really need the industry to do is step up and put that capital to work to start deploying this stuff at scale. Now, it really starts happening after our first plant comes online in 27, 28. But really, to be able to start to hit the EPA's targeted goals, the US's targeted goals by the middle part of next decade, we have to be ready on the supply chain to be able to scale from one plant a year to 30 plants per year by the beginning of next decade to have any shot of being able to really just save the grid from from what's coming down the pike. And if not, if natural gas doesn't show up, I think what you end up have happening is you have power prices really start to spike because you're going to start to see more load growth that's looking for 24-7 power than exists on the grid system. And will that be enough? Those major, major prices be enough to induce somebody to build a combined cycle plant that right now would be out of compliance if those EPA rules get finalized and are put into law for good? Um, so it's, it's such an interesting macro setup, but I think the thing with net power that makes us a little bit unique is we're sort of hedged because I think our, our approach before was look just with the 45 Q program, like that carrot is enough for us to say, these are economic plants to, to be able to deploy in just about every grid system across the us, especially once we're into manufacturing mode and we get our CapEx down from that first plant. to $700 million by the 30th plant. That's just an estimate, but that's ultimately where we want to trend down to. And so we're sitting here in a place where we're good with just the 45Q, just that carrot. We didn't, and we don't necessarily need a stick on the backend because I think at the end of the day, the economics should prevail, especially with a commodity like power. And so we've designed this thing so that we can compete being able to leverage the 45Q to accelerate our development into manufacturing mode. that we don't necessarily need that stick. But certainly if we get that stick in the form of the EPA rules, it really will just accelerate us even further. And then guess what? For the folks that are just proactively deploying that power just on the economics, their capex is going to come down because that means we're going to be deploying even more plants because of that EPA mandate. So I think the long and the short of it is the EPA rules are great for us. The 45Q was already amazing for us to set us up for growth in the United States. And so I think when you kind of put the two together, whether or not we have the EPA, I think NetPower is going to be in a really, really good place to be able to comply with whatever the EPA throws our way.

Thanks. That was a great response. On the EPA, just curious, NetPower was one of just a handful of private sector companies mentioned in the final document. I'm curious just how you reacted to that or what have conversations been like since the rule was published, maybe just any kind of anecdotes or commentary about the inclusion of, you know, net powers technology in that final rule be helpful.

Yeah.

I mean, I think some of just the, the color for, for the, for, for our investors that, that haven't been following it too, too closely, you know, the EPA proposed the rules last fall. They then opened it up for a comment period. You know, we didn't know that we were going to get called up by name specifically as an example of promising technologies coming down the pike on the carbon capture side. And so when they had their proposed ruling and then they opened it up for comment, we saw that as an opportunity just to let everybody know, not just the EPA but all of the other readers of that comment period, just the facts and circumstances of net power. And so we were just matter of fact about just the state of the net power technology development. Um, the state of the company, we had just taken the company public. We had properly capitalized the business to be able to scale up, to meet this future demand, um, resulting from the EPA rules. Um, but that's, that's really been it. Um, I think certainly the, the industry is, you know, the, the broader power industry is a little bit split on it. There's some folks that, that staunchly believe we need to get a cleaner grid system faster. And there's other ones that believe that we need to ensure that this transition to a lower carbon future. proceeds uninterrupted. So uninterrupted, affordable, reliable power. And I think in either case, we want to be there as that clean, affordable, reliable power source that really cuts right down the middle and really unites both sides that want that reliable, affordable power and they want it to be clean. So back to my intro comments today, there's not a whole lot of just energy solutions being developed that can do all three and And certainly we see net power is probably one of the better ones. And a lot of it is because we're using one of the cheapest energy feedstocks we have on planet earth, natural gas, especially here in the United States. And we've kind of always said, man, if we can find a way to decarbonize this really, really low cost feedstock, we really can deliver the energy trifecta. So I think it's something that we'll be able to get everybody to support. But I think right now it is a bit partisan in terms of people taking one side or the other, but we're going to be that aisle that goes right down the middle that I think everybody can rally around. And so being a public company with the shareholders that we have on this call, you know, there really is a much greater purpose to what we're trying to do beyond just creating significant shareholder value.

Thanks. That's it for me. Thanks, Thomas.

Thank you. Next question is coming from Wade Suki from Capital One. Your line is now live.

Good morning, everyone. Thank you for taking my questions. Just to kind of dovetail, I think it was maybe Marty or Leo asking about OP1. Sounds like there might be some shifting priorities or timelines here. I wonder if you could kind of give us maybe the event path timeline for what you see as OP1 today. And I can't remember, it might be old man memory or something, but did y'all disclose the size of this project?

Yeah. So the thing was, yeah, so the OP1 is the same size as serial number one. So I think as everybody knows, we have a standard plant design, right? And so that's really like the important thing coming out of serial number one is it really establishes that standardized design standard. that we're going to deploy in manufacturing mode across the US and the world. And so I think one of the just flexibilities we have, and this is really unique to NetPower versus all other real thermal power generation solutions, is every single plant really inside that battery limit is going to be identical to every other one. you know, absent changes for just ambient temperatures if you're in a cold environment versus a hot environment. But absent that, everything else about this plant, the size, the design, the weight, its operability, it'll be the same. And so what that allows us to do is a couple things. One is the manufacturing mode approach where we can just start to just mass manufacture all of the components of the plant. We can modularize the components of the plant. But the other really neat thing it enables us to do, it gives us flexibility to over when the plant's essentially coming off of that proverbial assembly line, which location do we want to send it to first? And it can be for both economic reasons. You know, a given market has crazy power prices that have spiked. Let's accelerate deployment of this location over another one where power prices haven't gone haywire. But it also allows us tremendous flexibility if we run into any permitting delays in one location versus the next. We always have other projects in the hopper that we can then send those components to, to get those plants online sooner. So it's almost like a little bit of an insurance product to being able to have this standardized approach. Now, right now we're sitting here saying, okay, one right now it's kind of in line to be serial number two, but as we're developing other origination projects, as we're starting to have serious dialogue with prospective customers that are in dire need of being able to meet their own power demand on just the traditional licensing commercial side. there's going to be opportunities for us to accelerate other projects. And it's really part of it is through the lens of what's in the best interest of the shareholders to accelerate one project versus another. But also part of it is just like the social responsibility of this area really, really needs, you know, baseload reliable power much sooner than this, than this other area. So I think at the end of the day, you know, when we think out 20 or 30 years, we're going to do what's in the best interest of the shareholders longterm. And I think certainly the standardized design really enables us to have total flexibility to ensure that happens.

Makes total sense. Thank you so much. Let's take the next step, I guess, here. You know, I was asking about the commercial pipeline, things like that. You mentioned Alberta, but I'm just curious, where in line do international opportunities kind of reside in the pecking order or in the priority list as you see it today? Again, any hints you could give us on geography, that would be fantastic.

Yeah, I think we've been pretty transparent about what international markets are really interesting to us. The Canadian market's a little bit unique. um specifically western canada just because it's a competitive power market just like most of the u.s markets so the aso system um is a competitive power market just like a mysore pjm or an ercot where anybody can go build power generation out there if they wanted to supply power into alberta and so that's an area where we could do origination in where we're working on things right now and so that's an interesting area i think when we look at other international markets Those are usually state-controlled when we look at places like the Middle East. But again, that's a really, really interesting market because they have the key features of what makes NetPower really unique, which is access to low-cost natural gas and great places to store the CO2, whether it's permanent geologic storage, deep-saline aquifers, or for utilization in the form of enhanced oil recovery, where they can actually ascribe value to the CO2. And so the Middle East has always been interesting to us, and it's one that we're working on right now. And then we look at other parts of the world. Australia is another one. Access to low-cost natural gas places to sequester the CO2. Southeast Asia, I think in the nascent stage of figuring out what to do with the CO2 and where they're going to be able to procure low-cost natural gas, which is a little bit different than Europe, which has access to natural gas. They've chosen not to develop the natural gas, but they have fantastic places where they've proven they can geologically store the CO2 in the North Sea. So I would say the largest power markets in the world really have the key components necessary for these plants to make really good economic sense. I think the reality of where we're going to be is we're going to be in a place where I think the market demand for net power is going to be much greater than we're going to be able to supply with new plants for the first part of next decade. And so I think that's going to create, unfortunately, a little bit of scarcity value, which is a good thing for us because I think what it's really going to do is really going to manifest to the surface the most pressing, most economic markets for us to deploy our plants. And kind of sitting here today, Looking at the intrinsic value of a net power plant in any given market. You know, it's not just the value of natural gas based power. It's not just looking at spark spreads, but it's also looking at the value of the environment in that value of the environment comes in the form of in the United States, the 45 Q. And I would say, you know, the United States has done a really, really good job of creating an incentive program that starts to ascribe value to decarbonization. And I think now other countries are starting to look at the United States to say, if we're going to be competitive and really looking at it through the lens of net power, if we really want to get a net power plant sooner than plant number 100, we really need to step it up and ascribe a value to decarbonization. Because if they don't, we're probably just going to sit here and deploy net power plants for the next 10 years in the United States. which is an amazing place to be because we're sitting here looking at the U.S. grid system and saying, shoot, just to replace the aging coal gas and nuclear plants that we have on our system today, that's close to 800 net power plants in those markets where we have access to CO2 sinks. So we could just sit here in the United States for the next decade and fully decarbonize most of the U.S. grid system. And that's awesome, but that really doesn't do anything to decarbonize the rest of the world. So I think where we are today is we really want to see the rest of the world step up and place a value on decarbonizing their grid systems through a program similar to what the 45Q is here in the United States and similar to the carbon tax that Alberta has really pioneered up in Canada.

One last one for me, Dan, if you don't mind. As you look down the road, when the company is in sort of that manufacturing mode, what kind of timeline do you see, you know, let's just say from – customer signing agreement to, you know, through the permitting and everything to, you know, plant startups, you know, I guess we're in the 30s at this point, but what kind of timeline would you think about all in?

Yeah, that's a great question. I'll turn that one over to Brian to walk you guys through the timeline a little bit.

Yeah, hey, so for the initial projects, I'd say more of a traditional power project approach like Project Permian. Maybe think of it as four years end-to-end. Certainly that's something we want to compress over time. And as Danny said, with manufacturing mode and standardization, we can absolutely produce that. So what that will require is standard modular design, standard equipment, which we're setting up the company to do. such that when someone has the idea they want to start development, there's not re-engineering work required, which is typical in the power industry. There's not re-engineering work on the equipment, the overall plant design. And we get to a point where eventually even there's potentially inventory being held, long leads being ordered. If you just go back to the early part of the supply chain, the longest lead stuff is usually components and turbo machinery, for instance. So the equipment OEMs are very knowledgeable on how to get out ahead of customer orders if they see the demand coming. And they have a good line of sight and forecasting into that. And so we're working with them as we ramp up to have insight into the upcoming commercial opportunities. They're participating in the case of Baker Hughes, participating with us on the commercial committee. where we look at all non-originated opportunities and basically get out ahead of early engineering inventory, but really our intent is not to carry inventory, just reduce the overall cycle. What a net power plant should look like in the future is three years or even shorter is our target. from someone has the idea until it's operational. And the only way you get there is standard design and a modular manufacturing approach.

Fantastic. Thanks again. Y'all have a great day.

Thank you. Next question today is coming from Betty Jang from Barclays. Your line is now live.

Great. Good morning. I want to go back and ask about the data center demand. Just wondering, how big is the opportunity to do behind the meter power solution for a specific data center? Like, do you have to size down from the 300 megawatt utility scale to fit for a typical size of a data center?

That's a great question, Betty. You know, if we went back five or 10 years, we would say, yeah, maybe in that power plant is, is maybe too big. Um, and in those cases, you know, they'll be doing part, they'll take, there'll be partial load, you know, going to, to the data center and the rest would just go into the grid system because the data center is going to need redundancy, whether it's through backup on-site diesel generation or just connectivity to the grid. You know, if, if they're truly a behind the meter solution versus an off-grid solution, um, I think if you look at just the data centers of today and tomorrow in, in the size of these hyperscale data centers, these are, these are really massive facilities. You know, we're talking on the magnitude of 250 megawatts going up to a gigawatt. And so if you look at just the net power, you know, product market fit, we really are almost like the ideal product market fit for these data centers, which are like I said, going to be really, really large. Now, if you look at a data center, that's a gigawatt and you say, okay, data center is a gigawatt. You guys are only 250, 300 megawatts. That's not a good market fit. Well, we are because really what we're doing with the standardization, it really is conducive to fleet deployments. So you almost need to think of these like blocks or modules, sort of like the way the SMR guys, the small modular reactor folks are doing with nuclear, except instead of starting with like a 50 or 60 megawatt block, like they are, we're starting with a 250 to 300 megawatt block. And so to give them a gigawatt, we're really just putting a fleet of four net power plants together in a fleet configuration. And in terms of just the amount of acreage that takes up, you know, a gigawatt of net power will take up all of 60 to 75 acres. And you contrast that to the 3,000 acres that a solar farm would require just for, you know, their intermittent power or 30,000 acres that a wind farm would require to generate a gigawatt. So we're talking about not just the scalability of it in terms of power output, but we're also talking about just the importance of power density and what you can actually co-locate something next to these hyper, hyperscale data centers that are increasingly looking to build really, really large gigawatt, multi-gigawatt sort of facilities. They really do need a multi-gigawatt sort of energy dense, power dense solution And so it really needs to come from either large scale nuclear or combined cycles, or if we're looking for that energy trifecta from that power. So that's a, I think one of the big focuses for us is we look at just these energy hubs, these origination hubs that we're looking to set up. We're really trying to set up in areas where we're deploying, call it 10 to 40 net power plants, both to meet the grid need, but also to meet the behind the meter need that these data center folks are going to need over the coming decades.

That's really great, Carlos. Thanks for that. If I have a follow-up just on that, in your conversation with tech companies, are they looking for behind-the-meter solutions, or is it tied to the grid?

I think just the reality of the way data centers need to operate is they need like their most important thing, especially for these language learning model data centers, the LLMs, is they can't have any interruptibility in power. And so reliability is paramount because if you think about going through these language training programs and they can take a couple weeks and at the end of the first week, if there's an interruption, they have to start all over again. And so just that redundancy and reliability is absolutely critical to their ability to perform the way they need to. So latency isn't as critical as reliability is. But again, because the largest source of expense for these data centers is power consumption, affordability of that power is right up there with a reliability piece. And so there's probably no greater industry that's really in pressing need of just the energy trifecta, clean, affordable, reliable, than the tech folks. I think that the challenge that we're all facing is when we look across the spectrum of all potential solutions out there, there's nothing that does all three. You kind of have to create a portfolio where you're having to compromise a bit on affordability. You're having to compromise a bit on reliability. You're having to compromise a little bit on the carbon intensity in order to be able to meet your power needs. And so I think what we're really designing is that thing where there really is no compromise. I think where you're really having to see the adjustment with net power is it's a paradigm shift. And how are we going to get clean power? Because I think for the last couple of decades, people haven't looked at fossil fuels as being clean. And so this is really where we're changing the paradigm for people is getting them to stop looking at labels, stop looking at the source of the power, start looking at the output, start looking at, start measuring carbon intensity as the end all be all, because at the end of the day, that's all the mother nature cares about is what's the carbon intensity you're giving my planet. I don't care about the incoming fuel source to that power plant. I care about the outgoing emissions. And so this is an education process for everybody, because I think all of us have been conditioned over the last decade. When we think of decarbonization, we think of moving away from fossil fuels. But I think when you introduce a paradigm shifting technology like net power, all of a sudden you've transformed natural gas into clean, baseload dispatchable, firm power that's affordable. It really starts to make you question what is important. And I think everybody's in the day agrees that clean, affordable, reliable power is really, really important. And now we're really starting to just change that paradigm of moving away from looking at the sources of the power, the feedstock to really looking at the outputs of it. So I know I went on a little bit of a tangent there from the original question, but I think that is really where a lot of the conversation is. It's not so much about the technology, but just more about, is it okay to use natural gas as that solution to that world's energy and environmental problems. And I think, you know, that's, that's one of the big reasons why we took net power public was we needed a platform to be able to communicate to the world that all of a sudden we now have that silver bullet solution for both energy and the environment in one package. And it's coming from something that's a fossil fuel. And I think we're very proud to say we're able to deliver clean, affordable, reliable power. And we all need to be a little bit more agnostic about the source of the energy and more focused on the output to that energy. And I think if people can start to embrace that, guess what? You open up an entirely new pathway to both re-energize the grid and decarbonize the planet.

Thank you. I mean, I can't agree with that more. Just carbon intensity should be the end all and be all. And I think the EPA regulation actually helps a lot to drive that forward by measuring everything on carbon intensity. So thank you very much for that. I have a follow-up just on the Project Permian next steps. What needs to be tested with the air separation unit provider before you can finalize that long-term partnership? Just wondering if that's a financial negotiation or is it more technical integration, whether it fits well with the rest of the plan? And then separately, can you just talk about what is an open book estimate? Thanks.

Sure. This is Brian. I'll take that. Yeah, it's more of a technical integration at this point. I mean, these are large air separation units, so they're not, let's say, directly off the shelf, but we're very focused on not stacking technology risks. So we are integrating design aspects that have been proven before in ASV providers' past experience. So it's really more about getting the right technical integration. The commercial model for this and many power plants will be an integrated sale of equipment approach where Flowing in through the EPC or through Hohner will be the purchase of the ASU equipment integrated into the plant. So in other words, there's not a separate ASU distinguishable from the NetPower plant. It's a standard design that comes together. So we're really working through those technical integrations that's also integrating into the overall feed. And then, yeah, it's a commercial discussion. We had a lot of interest from industrial gas suppliers in this project because they all know that this first entry sets them up for deployment on future standard plant designs. So to first get the technical right, get the technical fully embedded into the feed, and we're working through some commercial. But there's really no development aspect of this. As far as the other question. Open book estimate means when we work with Zachary, we see all of the costs. So there is a different approach where you could just have a quoted lump sum price, which is not what we're pursuing. We want to work directly with them on value engineering and understanding where we're driving costs with our cycle design. So we see all of the costs.

Got it. Thanks.

Thank you. In the interest of time, we have one final question from Noel Parks from 2A Brothers. Your line is now live.

Hi, good morning. Just had a couple. You know, I wonder if you've covered a lot of really interesting touches on sort of gas macro and, of course, various power approaches for decarbonization. I'm just wondering, do you have any thoughts around whether some of the maybe more expensive a smaller scale fast solution. I think for instance about fuel cells running on natural gas. Try to have the potential to kind of I guess maybe shut down whatever price sensitivity there is out there and whether that could either be a benefit to you as your plans get closer to going online or whether it sort of is just going to place speed so much as the paramount concern that investment in longer but larger projects struggles a little bit. Do you have any thoughts on a scenario like that?

Yeah. No, it's an interesting one, Noel. I think a lot of folks are trying to find ways to be able to just launch peak pricing by adding battery storage wherever the heck they can, by doing fuel cells, by having more just natural gas peakers on the system. I think just the challenges is the sheer volume, just load growth demand that we're seeing coming our way is something that I think the power industry was frankly just caught flat footed for. And I think that the problem just gets compounded a little bit with these new EPA rules. You know, if it really has a chilling effect on people deploying those dispatchable sources of power generation that it's demonstrably proven that they can scale really, really quick, like the natural gas generation industry has over the course of the last couple decades. I just don't think, you know, whether it's fuel cells or batteries are going to be able to really do much in the way of really being able to meet the load growth that's kind of coming, because this load growth isn't intermittent. This load growth is 24-7, 365. So you really need to look at energy sources for power generation that can really just mirror that and just match that. And so then you're really looking at things like nuclear and natural gas. And so I think all of these other things will really help around the edges. But I think in terms of actually being able to scale up to deliver 50 to 100 to 500 gigawatts of new baseload generation capacity, you're really going to be looking at natural gas generation-based solutions. And so if it's, if it's going to have to be lower carbon intensity, natural gas, you're going to be looking at either something like net power, or are you going to be looking at post combustion carbon capture? And I think that gets back to like the whole, like the whole thesis of the net power technology in the first place when it was invented back in 2010. And it was just a simple statement of, if we really want to eliminate emissions from natural gas power generation, you really need to redesign the empowered generation cycle, because I think The beauty and the power of net power is really the simplicity of it, which is the challenge and the cost and the energy that goes into trying to separate the CO2 on the backside of a combined cycle or simple cycle plant. That is very, very expensive because of the nitrogen that you're actually having to process out because nitrogen is 90 to 95% of that flue gas. Only up to 10% of it is actual CO2. So the problem is the CO2, right? I'm sorry, the problem is the CO2. But the root of the problem on being able to capture it is all of that nitrogen. And so the net power cycle, the simplicity of it is do oxy combustion on the front end. It's much easier and simpler and cost effective to separate the nitrogen from the atmosphere, from the oxygen. So the only thing going to that combustion chamber is pure oxygen. And so I think sitting where we are today with where the world wants to go in reducing emissions, where the EPA wants us to go on eliminating emissions from natural gas power generation, A solution like NetPower is exactly what I think people would be focusing on today, knowing what we know now. But the thing with NetPower is we went back 15 years in time and we patented this process. And so we're in this really, really unique position, which is we're really the only ones that can do this at scale. And I think that's why as much as we are hyper-focused on proving this utility scale with Project Permian in 2027, We're really the only ones out there that can do this at this sort of size because of the IP portfolio we've put around this business. And so it's so imperative that we're there to be able to scale after that first plant comes online in 2028 and beyond. And so, yeah, it's a really good situation to be in. It's also a scary one just because we're going to be one of the only solutions that can comply and both of what the government wants, but also comply in terms of being able to meet customer demand for just their, their growing need for baseload, reliable, clean power. And so, uh, we're going to be ready. Um, and it's great that we have a very supportive, uh, shareholder group, both the public shareholders who have been super supportive of the company, but also the strategic shareholders that we brought into this public company, Oxy, Baker Hughes, SK, I mean, we have four of the largest, most well-capitalized, most forward-looking energy companies that really comprise our strategic shareholder group. So I think the foundation that we've established to be able to scale this company is the foundation that I think our public shareholders want us to have. And so at this point, we're really just an execution to prove the cycle at utility scale, prove this technology creates an entirely new pathway to decarbonize the grid system. and really scale this to meet the world's growing need for baseload clean, affordable power.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Hey, thank you, everybody, for joining us today. This is really fun. Hopefully it was informative, and hopefully we'll catch you on the next call in three months. Have a good afternoon.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.