There is a big change taking shape in the global energy market. Put simply, many view carbon-based energy sources negatively today, and clean alternatives are seen as the best long-term option. That's the environment that NuScale Power (SMR 5.01%) is operating in as it looks to build small-scale nuclear reactors.
A lot is going on here and the investment thesis for this company is still developing. Let's take a look at the potential that NuScale Power can tap into and the issues it's facing to see if buying stock is the right option.
What does NuScale Power do?
Technically speaking, NuScale Power is a company focused on research and design right now. It has yet to actually build the small modular nuclear reactors (SMRs) that it is working on creating. But the goal is to eventually produce them in such a way that they can be easily transported, safely operated, and linked together (up to 12 at a time) to generate nearly a gigawatt of power in a single installation. That's a sizable power plant.
Image source: Getty Images.
This is not a small undertaking because nuclear reactors are highly regulated. According to the company's 10-K:
Since 2007, over $1.8 billion has been invested in the development of our technology and we have been issued 455 patents globally, with an additional 158 patent applications currently pending. In September 2020, our 12-module VOYGR-12 design [currently approved for 160 million watts of thermal power or 50 MWe per NPM] became the first and only SMR to receive an SDA [standard design approval] from the NRC [Nuclear Regulatory Commission]. The NRC's final rulemaking approving NuScale's design certification became effective in February 2023.
The company is well on its way to making a real product, including an agreement to provide as many as 24 of its small-scale nuclear plants to power data centers in Ohio and Pennsylvania. Data centers use a huge amount of electricity, so nuclear power is likely to be a key supply source. That brings up some additional interesting facts about NuScale Power's market outlook.
The problem NuScale is trying to solve
The dominant clean energy power sources today are hydroelectric, solar, and wind. Solar and wind are problematic because they are intermittent, meaning that they aren't always producing power and the amount of power can fluctuate wildly even when it is being produced. Hydroelectric can provide base load (always on) power, but it is limited to specific geographic regions and water flows can influence the total amount of power output. Only nuclear power can provide carbon-free electricity that is always on and the output is controllable. This is why it is so attractive for situations where demand is steady and high, like data centers.
But there's still more to this story. Large nuclear power plants are expensive to build and take a long time to get up and running. NuScale is basically looking to create an assembly line that can regularly churn out low-cost nuclear power plants. Although each one of the devices will be small, chaining them together can create a substantial power plant. The big concern around nuclear power -- namely, a meltdown -- is also reduced because of the design and small size of each individual unit. The hope is that the modular approach will help get more people comfortable including nuclear power along with solar, wind, and hydroelectric, all four of which are low-carbon-emitting energy sources.
NuScale doesn't believe its plants will solve the whole power problem, but it does think it can be a key part of the solution. But how big is the problem? The company believes that "global power consumption is expected to increase 191% between 2020 and 2040, requiring approximately 22,000 gigawatts ('GW') of additional generating capacity." That's an astounding surge in demand, and solar and wind alone probably won't be enough to meet it. NuScale's model, which would allow small power plants to be built in one place and transported to where they are needed, could be a really valuable option.
The fly in NuScale's ointment
All told, NuScale has identified a need and is creating a somewhat elegant solution. That's the good news. The bad news is that, as noted above, it still hasn't produced a product even though it has made solid progress toward that end. You are buying a good story when you buy NuScale Power today, which is probably something that only more aggressive investors should do. That said, less aggressive investors still might want to keep tabs on NuScale. When the company proves it has a functioning product, it could be worth a second look.
