NextEra Energy’s CEO says NuScale Energy’s business model isn’t worth it

NuScale Power (SMR 13.01%) is an upstart looking to be at the forefront of what could be a massive overhaul of the nuclear power industry. That’s the hope, anyway. However, at least one prominent utility industry veteran doesn’t think NuScale Power’s approach to nuclear power will work out the way investors now seem to be hoping, given the stock’s recent surge (the stock is up 400% in a year! ). Here’s how investors should think about NuScale Power.

NuScale Power is a high-risk investment

It is important to understand from the outset that NuScale Power is not for the faint of heart. First you have to believe in the long term future of nuclear power. You also have to believe that an unproven approach to nuclear power generation is likely to succeed. Then, you must be willing to own a company that is suffering losses while working to build a business around that unproven approach. Only the most aggressive investors should look at NuScale Power.

Image source: Getty Images.

The big story here is that NuScale Power is trying to build small-scale modular nuclear reactors (SMRs). Although theoretically attractive, the technology has not been tested in any meaningful way. However, if it can be developed, there are many potential benefits. For example, building small reactors is likely to be easier and, at scale, cheaper than building large nuclear reactors. Small reactors are also likely to be safer than large ones. Given the modular design, they are also likely to be easier to place where they are needed.

However, going from a concept to a full product is not an easy or cheap process. It’s even more difficult when you add in the reasonably burdensome regulation around nuclear power companies. All of these are part of the problem NextEra Energy (NEE 3.15%) CEO John Ketchum was making the point when he questioned the possibility of small-scale modular nuclear reactors during his company’s Q3 2024 earnings conference call.

An opportunity for the end of the next decade

To be clear, Ketchum is not suggesting that small-scale reactors are a dead end. In fact, he noted that NextEra Energy is closely monitoring the technology. But at this point, he doesn’t see it playing a material role in the energy market until “the end of the next decade.” That means the technology will have to continue to develop for another 10 to 15 years before it’s ready for prime time.

This is actually not an unrealistic view of the situation and, as the CEO also noted, there are only “a handful [of SMR companies] that really have capitalization that can actually carry them through the next few years.” If a company can’t get through the “next few years,” it probably won’t be able to make it for another decade filled with heavy R&D spending and the capital investment needed to bring small-scale nuclear reactors to market.

For this purpose, NuScale Power, which benefits from the support of a financially strong construction company Fluorineit’s clear in its 10-K that it will likely continue to flow red ink for years to come. So Ketchum’s somewhat bleak outlook shouldn’t come as a shock to anyone, especially not investors in NuScale Power.

The NextEra CEO also pointed to another aspect of the problem, noting that small-scale modular nuclear reactors are still very expensive because they are a new technology. This is true for almost any new technology, as building the first one is usually quite expensive. You won’t see costs drop until production starts at scale. Of course, this cannot happen until a prototype is built and tested. But even then, NuScale Power, and any other SMR company, will have to build a manufacturing facility and ramp up production, which is no easy task either. NuScale Power is still at the beginning of a very long journey.

NextEra’s CEO is being realistic

Ketchum isn’t really saying that small-scale modular nuclear reactors, like the ones NuScale Power is trying to build, are a dead end. He really says that his company needs energy solutions now, and new nuclear technologies are simply not useful in this regard because they are still in the early stages of their development. The takeaway for NuScale Power investors from all of this should probably be that NuScale Power still has a long way to go, both in terms of time and money, before it can be a self-sustaining company for the long term. .