NET Power Inc

NYSE:NPWR

Earnings Call Analysis

Plant Strategy and Launch Timelines Unveiled

The first NET Power plant is expected to be online between mid-2027 and early 2028. The location and sequencing of the subsequent utility-scale plant, SN 2, are under strategic consideration, with the potential for other projects to take precedence based on economic and strategic factors. Regulatory preparations for the first plant's operations are well underway, with the filing of an interconnect application in the MISO region imminent, and the necessary permits are anticipated to be secured well before the plant's commissioning.

Project Progress and Expectations

The company has made significant progress with their NET Power project, which is expected to begin initial power generation between the second half of 2027 and the first half of 2028. Large parts of this year will be focused on completing the Front-End Engineering Design (FEED) for Project Permian and forming a project consortium. Key steps also include negotiating supply contracts and solidifying a financing strategy. NET Power's capital will seed the project ahead of consortium partner commitments. The agreement with OXY for the West Texas plant site underscores steady advancement towards the planned schedule.

Technology Development and Validation Campaign

In the field of technology development, NET Power secured a strategic supplier agreement with Lummus Technology. Lummus is now the go-to supplier for the recuperative heat exchanger crucial for NET Power's utility-scale plants. This agreement positions Lummus to design and manufacture optimal performance heat exchangers, exclusively for NET Power licensees, while NET Power retains all related intellectual property. This partnership expands NET Power's competitive edge and promises licensing revenue from Lummus's future sales into NET Power plants.

Financial Strength and Investment Strategy

NET Power exhibits financial robustness, ending the fourth quarter of 2023 with around $637 million in cash and short-term investments. Capital expenditures for the quarter amounted to about $8 million, for development activities and site preparation at La Porte. Operations are incrementally consuming cash, but the strong balance sheet offsets corporate expenses. The company is tactically utilizing interest from its cash reserves to mitigate operational cash flow demands.

Strategic Supply Chain Partnerships

The company prioritizes strategic supply chain partnerships, intent on long-term agreements that support its vision of delivering clean, reliable, and affordable energy at scale. For Project Permian, partnerships with select air separation unit and control systems providers are key focal points. The company aims to leverage advanced technologies from its partners, enhancing its competitive position and reinforcing its intellectual property moat.

Looking Forward: Market Growth and Licensing

The company has recognized a market shift towards emission-reducing technologies, with their NET Power technology regarded as a critical component in the pathway to a low-carbon future. NET Power aims to create scalable manufacturing mode operations to meet the demand for reliable and clean energy solutions. Moreover, Project Permian will serve as an opportunity for strategic partners and future customers to familiarize themselves with NET Power's systems, signaling an intention to lay the groundwork for prospective global licensing deployments in the 2030s.

Equipment Validation and Licensing Economics

La Porte's existing plant facilitates validation of the turboexpander, a major component of the cycle. The plant is being modified specifically for Baker Hughes' equipment, which will arrive at the site in 2026 and initiates Phase II of testing. As for their business model concerning licensing fees, NET Power will adjust these on a per-project basis, emphasizing plant economics where a plant showing more than a 20% return may command a higher license fee. However, specifics of licensing fees for Lummus and other equipment are yet to be disclosed, as they depend on performance and cost-reduction benchmarks.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings and welcome to NET Power Incorporated's Fourth Quarter and Year-end 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.At this time, I'll turn the conference over to Bryce Mendez, Director of Investor Relations. Mr. Mendes, you may now begin your presentation.

[Bryce Mendes, executive]

Good morning, everyone, and welcome to NET Power's fourth quarter and year-end 2023 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. Yesterday, we issued our earnings release for the fourth quarter and year-end 2023, which can be found on our Investor Relations website along with this presentation at ir.NET Power.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, NET Power's Chief Executive Officer.

[Daniel Rice, executive]

Thanks, Bryce. Hi, everyone, thanks for joining us today. I'll provide some thoughts on the encouraging macro setup for NET Power and how it plays into our 3 pillar corporate strategy, I'll recap 2023 highlights, and I'll share what's in store for 2024, and then I'll hand it over to Brian and Akash for operational and financial updates.Starting with the macro, we continue to see very positive signals that future load profiles will require more low-carbon generation for 2 distinct but related applications: first, generation that can load-follow to balance intermittent renewables, while in other instances serving as 24/7 clean, reliable power for baseload, industrial, and behind-the-meter applications. What makes NET Power very attractive is that our power plant is designed to serve both of these growing markets, and because low-cost natural gas is a feedstock to our patented process, we believe NET Power plants will be the lowest-cost option to do so for both.Anecdotally, our first plant, Project Permian, which will inevitably and unsurprisingly be the most expensive plant we ever build, is expected to have a lower levelized cost per kilowatt-hour than new nuclear, new geothermal, and new hydro. And as we move from Project Permian to SN 2 and into full-scale manufacturing mode, we'll expect to quickly begin moving down the CapEx curve and really begin to differentiate NET Power's affordability from other forms of reliable, clean generation.On the topic of reliable generation, one fairly nascent segment that has gotten the market's attention lately is data centers, and hyperscale data centers in particular, given the robust load projections for AI. These data centers are hungry for power. They're expected to become one of the largest segments for load growth in the U.S. through 2030 and beyond. And because our NET Power plants are designed to deliver low-cost, low-carbon intensity, 24/7 reliable power, we think our product will be the best fit amongst options for this category. Similar to how we assess all market opportunities, it begins with mapping out where these plants make good sense.The mapping criteria for these bright spots are unique. The mapping layers are existing in planned fiber, geology for sequestration, ambient temperatures to ensure efficient data center cooling needs, and access to natural gas. One of the criteria that's a nice to have, but not a need to have, is proximity to power transmission lines. Given the 24/7 dispatch ability we're designing for our plants, we expect we can go off-grid and put these data centers where they're best suited. This layered map creates quite a number of interesting bright spots across North America for future NET Power plants for this segment. Interestingly, no modifications would be required for our plants. The initial size we're bringing to market with generation 1 will be targeting roughly 250 megawatts. So we could see perfect pairing of NET Power plants with a single hyperscale data center. And as you see these data centers becoming larger, up to 750 to 1000 megawatts, it really lends itself to NET Power's modular design in order to deploy fleets of 3 to 4 NET Power plants to match each data center's load.The reason why I mention this market is it really reinforces the importance of our 3 pillared strategy: first, prove this technology at utility-scale. We think the world needs NET Power like no other technology. And the sooner we can prove it, the sooner the world can begin implementing a better pathway to energize and decarbonize. Second, build the supply chain to quickly scale deployments in manufacturing mode. Because we have such an enviable patent portfolio around our process, it's really only NET Power that can generate low-cost, clean power for the variety of applications we're pursuing, which means we need to be prepared to deploy our plants at meaningful scale to meet the needs of not just the data center industry, but utilities to meet the baseload and load-following needs of grids today. And as Brian will touch on in a bit, we're ensuring the partners we pick today have the ability to scale with future demand. And the third pillar is to build a backlog of projects to fully activate the supply chain strategy. And we're going to use our origination strategy to catalyze early adopters of NET Power plants, bring in strategic partners to these projects to accelerate their learning in order to accelerate their own licensed deployments across their targeted operating areas. On this last point, we're making good progress on our first originated project, OP1, and are actively working on several others, all while advancing discussions with prospective customers across Canada, the U.S., the Middle East, Australia, and Europe for deployments beyond Serial Number 1.Recapping the past year for a minute. '23 was a pivotal one for NET Power. We raised significant capital through our public listing, which will allow us to develop and improve our technology at utility-scale. We commenced the FEED program for our first utility-scale plant, which will be located on OXY-hosted site in West Texas. We added Lummus Technology to fulfill our recuperative heat exchanger supply chain strategy, and we announced development on our first originated project, which will be located in the MISO region. All of these accomplishments are steppingstones towards deploying NET Power plants at mass scale by next decade.In 2024, we have a few key milestones to highlight. First and foremost, we plan to begin the first of 4 phases of combustor and turboexpander equipment validation at La Porte. In a few moments, Brian will provide additional color on these testing campaigns and why they're so important to validating the equipment and expected performance of SN 1 at Project Permian. Second, we expect to complete FEED at Project Permian and will begin to form the project strategic owner group. As a reminder, NET Power considered various federal programs to supplement the funding for SN 1, including the DOE grant program. DOE announced the recipients of the grant in December, which didn't include Project Permian. It's important to note that the goal of Project Permian is to deploy our technology utility-scale with safe, reliable operations, and the DOE grant would have required Class VI sequestration, which, due to the specific geology in West Texas, adds offtake risk and materially increases sequestration costs to the project. When we first announced Project Permian in 2022, our plan was for NET Power and the strategic owner group to fund our first project. This remains the plan, and we expect to announce more details regarding the funding strategy later this year.Our 3rd 2024 expected milestone is to finalize and announce our long-term strategic partner for the Air Separation Unit, or ASU, one of the critical components of our cycle. And finally, we'll continue to advance additional NET Power origination projects. This includes submitting our application for interconnect and Class VI wells at OP1 and moving a couple of other origination projects along in order to talk about those locations more publicly. So as we wrap up our first calendar year as a public company, our thesis for NET Power is playing up faster than expected. The world needs clean, affordable, and reliable power, and in my mind, NET Power is the only solution that adequately checks each of those boxes. Because of the patent portfolio around the cycle, we're the only ones who can do it, and so we've got to do it right, and we've got to be ready to do it at scale. I couldn't be more excited for what's to come as we continue to develop and deploy a technology the world desperately needs.So with that, I'll hand it over to Brian for operational updates.

[Brian Allen, executive]

Thanks, Danny. The team continues to make steady progress developing Project Permian and our NET Power technology. On Slide 8, we highlight several key milestones completed in the last few months, as well as milestones we plan to achieve in 2024. For Project Permian, in the fourth quarter of 2023, we signed our Limited Notice to Proceed, or LNTP, with Baker Hughes for the release of long lead material for the utility-scale turboexpander. Issuing LNTP for the primary turbo machinery of a power project is one of the key critical paths of the overall project schedule, and it allows Baker Hughes to release orders to its major material subsuppliers in support of our schedule.More recently, we initiated engineering work with our selected ASU provider and executed our land lease agreement with OXY for our plant site in West Texas. These achievements allow us to remain on schedule for the project, with initial power generation expected to occur in the second half of '27 to the first half of 2028. As Danny mentioned, this year we expect to complete Project Permian FEED and to form the project consortium. This year we will also negotiate key supply and offtake contracts and solidify our financing strategy with our strategic partners and owners. It's important to note that NET Power's capital will be the first dollars into the project, ensuring long leads are secured at the appropriate time to maintain schedule ahead of additional capital commitments by our consortium partners. We will order additional long lead components, including the recuperative heat exchanger and major electrical equipment throughout 2024.As it relates to technology development, in the fourth quarter, we signed our strategic supplier agreement with Lummus Technology, which designates Lummus as the recuperative heat exchanger supplier for NET Power utility-scale plants. I will touch more on this agreement and its significant implications for NET Power in a few slides. This year, we will develop our initial standard plant process design package, a key licensing deliverable that supports future project FEEDs in a manner that maximizes standardization and drives down plant capital cost. We also intend to secure a long-term strategic supplier agreement with our identified ASU provider, which we view as one of the most important next steps in standing up our long-term supply chain for the major licensed components of our cycle.On Slide 9, the validation campaigns at La Porte will follow Baker Hughes' established new product introduction and risk mitigation strategies. Whereas our previous La Porte testing from 2018 to 2022 was primarily focused on proving our proprietary oxy-combustion supercritical CO2 cycle. This upcoming testing will primarily focus on validating and derisking the Baker Hughes utility-scale turboexpander and how to optimize its operation within our cycle. The ultimate purpose of the demonstration plant and demonstrator campaign is to simulate the nearest conditions possible that the utility-scale turboexpander will see at Project Permian. Therefore, the demonstrator turboexpander design, architecture, technology, and material selections, all seek to replicate as closely as possible the behavior and environment of the utility-scale turboexpander. Equipment validation will follow 4 primary phases and will continue through 2026.The first phase of testing at La Porte focuses on the turboexpander's burner, which is where combustion of natural gas and oxygen take place in a CO2 environment. We will test multiple oxy-fuel burner configurations, and Baker will select the best burner heading into the next phase. The second phase of testing will take the down-selected oxy-fuel burner from Phase I and test it alongside with a combustion liner and other hardware to form a single demonstrator size combustor can. The combustor can's purpose is to deliver the high-pressure and high-temperature mixture of CO2 and water to power the expander. This testing will allow us to optimize the combustion in full La Porte demonstration conditions. The third phase of testing will involve scaling the demonstrator-size combustor can from Phase II to a utility-scale can with clusters of burners and then testing it with the goal of learning and to optimize the design of the utility-scale combustor that will operate at Project Permian. The fourth and final phase will test the full demonstrator turboexpander, including the validation of materials and design architecture used on the turboexpander for Project Permian. Baker Hughes and NET Power will use this testing to tune our analytic and performance simulation models with the acquired test data. We will confirm the demonstrator turboexpander 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 can minimize residual first-of-a-kind risk prior to a Project Permian initial operations.Turning to Slide 10. Our strategic supplier agreement signed with Lummus marks a significant achievement for the continued development of the NET Power cycle. As I mentioned before, Lummus is the designated recuperative heat exchanger supplier for NET Power. Not only do they have an extensive track record of delivering heat exchangers globally, but their 110-plus years of experience in licensing technologies for numerous process industries makes them the ideal partner for NET Power. Lummus has a long history of supporting NET Power technology with an unmatched understanding of the NET Power heat exchanger requirements. As a system integrator, Lummus will leverage its best-in-class global supply chain of heat exchanger component manufacturers to design and manufacture the most optimal performing and lowest total cost recuperative heat exchanger network for our cycle. They will also be proactively ramping up their capacity to meet future demand for NET Power plants.This partnership further expands our competitive and IP moats. NET Power will own all cycle, process, and controls IP developed, and Lummus can only sell this proprietary recuperative heat exchanger to NET Power licensees. NET Power will also benefit from receiving licensing revenue on Lummus's future sales into NET Power plants, as is customary for specialty licensed equipment in the process industry. This agreement is a fantastic partnership for us, and we're excited to work with Leon and his team at Lummus.Slide 11 provides an all-encompassing view of our strategic supply chain partnerships that have been formed for the main components of our cycle. As previously mentioned, we have initiated engineering work with our selected air separation unit provider for Project Permian. We will look to form a long-term strategic supplier partnership with them this year and announce more details at that time. Another area of focus this year will be establishing our control systems partner. As we evaluate each supplier partnership, we look for win-win opportunities to leverage our partner's most advanced technologies and to further enhance our competitive position and IP moat. So far, we have been able to find best-in-class partners that are aligned with our vision of delivering clean, affordable, and reliable energy, and importantly, to do so at manufacturing scale.With that, I'll pass it off to Akash for the financial updates.

[Akash Patel, executive]

Thanks, Brian. Turning to Slide 13. NET Power ended the fourth quarter of 2023 with a strong balance sheet, including approximately $637 million of cash and short-term investments. For the quarter, our total capital expenditures were approximately $8 million, comprised of approximately $5 million capitalized costs associated with the ongoing Project Permian development activities and approximately $3 million spend at La Porte on modifications and upgrades ahead of testing, which is expected to begin this year. Under the current interest rate environment, we continue to benefit from putting our balance sheet cash to work to materially offset our corporate spend. In the fourth quarter, our cash flow used in operations was approximately $3 million. As mentioned last quarter, we expect cash flow used in operations to continue increasing as we build out our organization, progress the joint development program with Baker Hughes, and ramp up activity at La Porte.Moving to the right side of Slide 13, we show an illustrative use of existing capital through the end of 2027 when we expect initial power generation for our first utility-scale project. Of the approximately $637 million on balance sheet, we expect earmarking approximately $200 million for our equity contribution to Project Permian, approximately $175 million for the CapEx and OpEx at La Porte, as well as Baker Hughes's joint development agreement, and approximately $265 million towards corporate G&A, origination work, and other expenditures.NET Power's fully diluted share count was approximately 247 million shares as of December 31, 2023. This was comprised of approximately 212 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 will give NET Power an additional $225 million in cash, 1.6 million shares subject to earnouts or vesting requirements, and approximately 14 million authorized shares issuable pursuant to the joint development agreement with Baker Hughes. For a detailed breakdown of our diluted share count, please refer to Notes 10 and 11 of our 10-K.That concludes our prepared remarks. I'll now pass it back to the operator to open up the line for Q&A.

[Operator]

[Operator Instructions] And our first question will be coming from the line of Noel Parks with Tuohy Brothers.

[Noel Parks, analyst]

I just had a couple I wanted to run by you. When you were talking about the different phases of testing, I think, in the fourth one, there was a mention of with the turboexpander that you'll use that process to confirm your analytics that you and Baker Hughes will be using. I was just wondering, when you talk about analytics for that stage of evaluation, are those proprietary metrics you are going to have to build or are they just more standardized benchmarks you'll be using?

[Daniel Rice, executive]

Yes. No, this is Danny. So the question is really around the configuration and the design of the components. Is that right?

[Noel Parks, analyst]

Yes.

[Daniel Rice, executive]

These are custom-built Baker components, but I'm going to turn it over to Brian to give you some of the technical details of the components.

[Brian Allen, executive]

Sure. Yes, Noel, so the analytical tools definitely are proprietary to ourselves in the cycle design and to Baker and their various tool sets on how they design compressors, expanders, turbines, et cetera. So with any model or any simulation, you're making some assumptions. So just, I'd say, typical engineering good practice, as you get data, you always go back to your analytics and simulations and verify them or update them.

[Noel Parks, analyst]

You talked a good bit about the steps involved in securing the supply chain, and I was also thinking about with the Lummus relationship, I wouldn't expect you necessarily to get into details, but does Lummus have incentives for adhering to your schedule or timetable? I was just curious if you could just generally characterize what those would be like, just your ability to manage that.

[Brian Allen, executive]

Sure. Yes, I can take that, Danny. Yes, they absolutely do. This strategic supply agreement really aligns our incentives together. There's incentive for them to pursue a cost-down reduction program with us. There's incentives to build out the capacity required to ramp up into manufacturing mode. There's incentives to standardize. So it really aligns with our 3 pillars, which any supply agreement, that's really what we're trying to do, is not optimize just for one order, Project Permian, but to build out really alignment through all 3 pillars with these partners.

[Operator]

[Operator Instructions] Our next question is from the line of Thomas Meric with Janney Montgomery Scott.

[Thomas Sellers Meric, analyst]

Dan, you mentioned the power plants as an option for data center power, and I'm curious about unpacking that a little bit more. Mainly just curious on how you think or how we should think about the challenges and the opportunities for this power offtake, specifically with respect to CO2 infrastructure buildout and sequestration opportunities.

[Daniel Rice, executive]

Yes. No, certainly, like I mentioned in the prepared remarks, putting these plants in the right location is the first piece. And so, again, it starts with the geology. It starts with mapping it out. I think when most people think of data centers and hyperscale data centers, they only really think of Data Center Alley in Virginia, just because that's where the largest concentration is. But if you look at just across the United States broadly, data centers are everywhere. There's more data centers, I think, in Texas at this point than there are in that West Virginia-DC Metroplex area. And the reason for that is that's where population trends are going. That's where data demand for AI and [ photons ] are going. And so when you actually start to map all this stuff out, and you map out where is the data center demand for future deployments and where there is natural gas infrastructure on getting access to that gas, and you map out just the subsurface piece, it really starts to illuminate some really interesting areas that I think most people aren't totally appreciative, like the northern MISO region, from Illinois, Indiana, Ohio, into Kentucky, West Virginia. I would say, why couldn't West Virginia become Data Center Alley version 2.0 with even lower-cost natural gas and lower-cost power? That's lower carbon intensity than what's in Virginia right now if you could put NET Power there.So these are all like paradigm-shifting opportunities where it really opens up the landscape for where you can start to establish even lower carbon intensity, lower-costing power for these data centers. And it just so happens that the design that the team wanted to bring to market in terms of the size of this NET Power plant, the first utility-scale one, really correlates fairly well with the power load for these data centers. So we think it'll be a really good match made in heaven conversations with a lot of the big tech guys that have been going on over the course of the last few years in early stages. But I think just like why we thought it was so important to put NET Power in the public spotlight for the utility potential customers, it's to ensure that they understand this pathway that NET Power creates before they commit to a much higher cost, much less reliable option. And so we're designing this plant for reliability, we're designing this plant for affordability, and inherent to that cycle is almost 100% capture of that CO2. So we think from just a responsibility and sustainability perspective, NET Power is going to, we think, be the top choice for a lot of these potential applications.

[Thomas Sellers Meric, analyst]

Brian, on the strategic partners, you went into good detail on Lummus and the heat exchanger, so I won't ask for any more from that. But how do I think about that in terms of a control system partner? And just what should I or investors look for over the next couple of quarters?

[Brian Allen, executive]

Sure. Well on that one, it is really critical, but it's not a long lead as similar to let's say the heat exchanger or turbo machinery. So we have a little time to get this right. But what we'll look for is again a partner aligned with our 3-pillar strategy. And if you think about the NET Power process, what we're really doing is bringing together best-in-class combination of equipment that all have to work together in unison. So really the control system called the code on how you operate this plant is really some of our key technology development and IP. And we developed that at La Porte. But it will be modified and enhanced as we go to Project Permian. So we'll be looking for a partner similar to the others that we can have repeatable scaling with, that respects our IP, that wants to grow with us, and will focus on cost reduction programs, all the key elements that we want to embed in the other partnerships.

[Operator]

Our next question is from the line of Wade Suki with Capital One.

[Wade Suki, analyst]

Just wondering if you might be able to give us a little more detail or color to the extent you feel comfortable on the commercial pipeline. Geographies, I hate to push you on geographies or type of customers. Any additional color would be great if you don't mind.

[Daniel Rice, executive]

Yes. Wade, I think as we said in the opening remarks, the primary application for NET Power is power to the grid, CO2 gets permanently sequestered in the geology. And that right now is the biggest market for us. And a lot of it happens to be in a lot of just the regulated power know. MISO, PJM, ERCOT, CAISO, Alberta, the middle east. And so that's obviously the primary market. That's really where we're focusing a lot of the origination efforts. That's where we're starting to see just a lot of inbounds. And I think that's really just because that's where the geology is very conducive to sequestering the CO2, where it's been proven. That sequestration piece is not just the entirety of the environmental proposition of a NET Power plant, but in places like the U.S. where you get that 45Q, it's a huge, huge part of the economic proposition too. And in some of those places, you can actually make more money on sequestering the CO2 than you do on generating 24/7 clean power.So those conversations continue to pick up. I would say the one thing that has been surprising is I think a lot of countries, a lot of companies have come out and committed to these net-zero ambitions without really doing the calculus to figure out what is that pathway to actually get there. And so we're starting to have more and more conversations with potential customers who are coming to us saying, all right, we've done the math, and it just doesn't pencil out trying to get there with just renewables alone. It doesn't pencil out with some of these other options without causing a doubling or tripling of the power prices that I would have to charge my customers. And that's just not tenable. And so now people are saying how soon are you guys going to be able to scale up into manufacturing mode.So it's really good feedback that we're getting from the market. It's part of the whole thesis of us taking NET Power public in the first place was eventually the market is going to come to this realization that there's no solutions out there that can ensure affordable, reliable, clean power at the scale that the world needs. And unfortunately, I think the world's already committed to this lower carbon future without really having those solutions in hand to get them there on that pathway. And so NET Power is creating that pathway. And so I think as we think about how can we help our potential future customers, a lot of what Project Permian allows us to do is start to bring strategic partners into Project Permian to get their feet wet, to get them up that learning curve on the NET Power plant so that they're comfortable to deploy it across their primary geographic territories.Same with the origination strategy. The origination strategy for us isn't because we want to become an independent power producer. We want to be able to create a pathway to bring in prospective future customers to participate, to operate, and really learn the NET Power plant so that they're super, super comfortable deploying across their primary areas also. So as we really think about our commercial strategy, it's about creating pathways to global license deployments in the 2030 and beyond. And so we're starting to have conversations with those customers that are interested in licenses, that are really interested in being able to come into our early projects to really dip their toe in the water and really understand how to run these plants. So the origination piece is just going to be a catalyst to those long-term license opportunities. And so we're seeing it both in the U.S., we're seeing it across the world, and I think with things like data centers, you're starting to see entirely new markets pop up that have the opportunity to be a major, major source of load for power demand, both here in the United States and other parts of the world.

[Wade Suki, analyst]

Not to put you on the spot here, but would your expectation be that within a couple of years of Project Permian coming online, we might have SN 2 or OP2 coming online shortly thereafter, somewhere in that timeline? Is that a fair way to think about it?

[Daniel Rice, executive]

Yes, that's right. I think the way we're looking at all of these origination projects, because we do have the benefit of time because the first plant will be coming online mid '27, end of '27, beginning of '28, that range there. We're really figuring out now where do we want SN 2 to be, the second utility-scale plant. So with OP1, that project that we announced, we'll be in the MISO region. We're going to be filing our interconnect application there. I think that MISO window opens next week, and it'll be open for 30 days. And so we'll get our interconnect application in there during that window. We're working on our Class VI permits with our partner up there. And so we're going to be in a place where we're going to have all permits in hand to do power to the grid, sequestration into the ground, well in advance of that plant. If we said we want it to be SN 2, it's going to be in a position to be SN 2. I think the determination of if it is SN 2 or if it's SN 3 or SN 4 is really a function of other really economic, more strategic projects that could leapfrog it and become SN 2. So what you're really going to be seeing from us doing over the next few years with origination, but also with licensed opportunities is just continuing to build up this backlog of projects, and we'll be able to slot them according to their importance to the NET Power strategy into the long-term proposition for the shareholders.

[Operator]

[Operator Instructions] Our next questions come from the line of Betty Jiang with Barclays.

[Betty Jiang, analyst]

I have a question for Brian. I was wondering if you could provide a bit more color around how you think about the risk profile for each of the validation phases at La Porte on Slide 9. Just trying to understand, basically, is Phase I and II just testing the equipment designed by Baker and what are the most important pieces that needs to get [ derisked ]. And then also, once you've proven the operation at the demonstration scale, is it relatively less risky to scale it up to utility-scale?

[Brian Allen, executive]

Sure. So, the phases are sequenced in order with each phase of testing, validating, and retiring key technical risks, which are shown on the slide. So in this way, there's no specific test, let's say, that's the highest risk that they're building upon each other. So they're all important I guess to say. A reminder that we're developing the utility-scale, or Baker is developing the utility-scale turboexpander in parallel. So really this is about validation? Yes. Both happening completely in parallel. I don't know if I answered your question fully, but I would say that all the phases are important. They all build on each other. Each one retires certain risks or certain results that Baker is looking to see, and each one builds in order from there.

[Betty Jiang, analyst]

So the demonstration equipment is actually what's currently on the plant right now?

[Brian Allen, executive]

Yes, the plant was built, exists, it's there. We are making modifications to it that are specific to the Baker Hughes turboexpander and the testing for the combustors. So Baker's equipment will be shipping in this year and over the future years to basically be placed where the prior turboexpander was located.

[Betty Jiang, analyst]

When would the Baker's turboexpander be arriving on site? And when will it get connected to the plant?

[Brian Allen, executive]

Yes, that'll be in the 2026 timeframe. So between now and then, we're doing combustor testing, which is a major component of the turboexpander. Again, what we're doing is really, we're demonstrating the combustion system, both for the demonstrator size, which happens in Phase II, and the utility-scale combustor size. So, in essence, before we start Project Permian, we will have already operated the full utility size can at La Porte.

[Betty Jiang, analyst]

Understood. And a follow up on the licensing fee. Just on the licensing fee that's related to Lummus, is it incremental to the fees that you have originally laid out for the NET Power cycle technology? And if so, just how material is it relatively?

[Akash Patel, executive]

Yes, I can take that Betty. This is Akash. Yes, it is additive, right? But as we said before, we're going to go through a pricing for each license we sell, right. It's all going to be predicated upon plant economics. If you see a plant that is earning 20%-plus returns once we come down the CapEx curve, we should be charging more for a license. So the license fee for constructing and operating a NET Power plant will be done on an individual project-by-project basis. As far as the Lummus and any other equipment licensing fees, it's too early for us to go out and say what that number is going to be, but it is a fraction, I'd say, of what our plant license is. And it's really formulaic to incentivize them, to come down the cost curve, and share in the benefit of that. So a little too early for us to say what that number is given we haven't placed an order yet for any third-party heater exchangers, but there is a formulaic way of us approaching what that equipment licensing fee will be.

[Operator]

Thank you. At this time, we've reached the end of our question-and-answer session. Now I'll turn the floor back to Danny Rice for closing remarks.

[Daniel Rice, executive]

Thanks, everybody, for joining us today. Really excited to share this update with you, share the key 2024 milestones. Really in the foreground for the next few years, we're really focused on steady progress through COD on Serial Number 1, which continues to stay on schedule. And really, as we talked about in the prepared remarks and some of the Q&A in the background where we're seeing significant step changes in market sentiment and total addressable market that really set us up for long-term success. So it's critically important we do it right with Serial Number 1. And doing so really unlocks what we think is going to be one of the largest, most valuable, total addressable market for, really, any company in the world today. So huge expectations for us, and this team is up to the challenge. And we are deeply appreciative of your support on this mission to deliver the energy trifecta. Have a good day.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.