Despite going public a month ago, NuScale Power may have a tough time meeting its planned 2029 target for generating power from its nuclear project in Idaho, according to analysts looking at the company that is now traded on the New York Stock Exchange. NuScale, headquartered in Oregon, had been largely financed by Fluor Corp., the giant Texas-based engineering and construction company.
NuScale issued a June 3 “business update” a month after going public. CEO John Hopkins said, “NuScale Power is well positioned and well capitalized to lead the broader energy industry into the future, one in which nuclear power is increasingly recognized as a critically important solution for cost-effective, 100% carbon-free baseload power.”
So far, NuScale has only attracted public power utilities to the alleged advantages of small, modular nuclear reactors. The company’s first project is to supply Utah Associated Municipal Power Systems (UAMPS), a public power joint action agency serving 30 municipal distribution systems in Utah, Idaho, California, Nevada, New Mexico, and Wyoming, with a total of 12 77-MW reactor modules (924 MW), a 2020 increase from the original plan for 12 60-MW units. The increased costs caused three of UAMP’s largest city systems to bail out of the project, raising questions about its financial viability.
The project is to be located on federal land, part of the vast land holdings of the Department of Energy’s Idaho National Laboratory.
In February, NuScale and Wisconsin-based Dairyland Power Cooperative, a generation and transmission co-op, signed a “memorandum of understanding” to “work together to explore NuScale’s small modular reactor technology and support Dairyland’s due diligence process in evaluating affordable, reliable and carbon-free energy solutions.” Dairyland, headquartered in LaCrosse, provides wholesale power to 24 distribution co-ops and 17 munis in Wisconsin, Minnesota, Iowa, and Illinois.
Reporting on NuScale’s recent developments, Utility Dive last week quoted Richard Rys, a senior consultant with the ARC Advisory Group, “There is an amazing dichotomy of people on each side of the issue” of whether going public will lead to commercialization of the NuScale SMR. “They need a lot of financing as their first reactor won’t start running until 2029,” he said. Rys is a chemical engineer who has worked on many large energy projects, including nuclear.
to the transaction, including $235 million “from the private investment in public equity (“PIPE”) investors, including DS Private Equity, Nucor, SailingStone Capital Partners, Samsung C&T Corporation and Segra Capital Management, with participation by Spring Valley’s sponsor which is backed by Pearl Energy Investment Management, LLC.”
Existing investors, according to NuScale — Fluor, Doosan Enerbility, Samsung C&T Corporation, JGC Holdings Corporation, IHI Corporation, Japan Bank for International Cooperation, Enercon Services, Inc., GS Energy, Sarens and Sargent & Lundy — have rolled all of their equity into the publicly-traded entity. “Fluor will continue to hold a majority interest in the company and will provide NuScale with engineering services, project management, administrative and supply chain support.”
NuScale employed some fancy financial fandangos to rapidly roll onto the NYSE, with a stock symbol of “SMR,” trading at the close of business Friday (June 3) at $10/share. The company avoided the conventional, but lengthy, process of an initial public offering and open market sales, which requires considerable coordination with the Securities and Exchange Commission, using a “Special Purpose Acquisition Company” or SPAC and PIPE sales.
Investopedia defines a SPAC as “a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) or the purpose of acquiring or merging with an existing company.
“Also known as ‘blank check companies,’ SPACs have been around for decades, but their popularity has soared in recent years. In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019.” NuScale’s SPAC was Spring Valley Acquisition Corp.
Then NuScale used the “PIPE”, or “private investment in public equity,” mechanism to quickly turn its new public registration into cash. Investopedia explains PIPE as the “buying of shares of publicly traded stock at a price below the current market value (CMV) per share. This buying method is a practice of investment firms, mutual funds, and other large, accredited investors.”
Wikipedia comments, “The attractiveness of PIPE transactions has waxed and waned since the late 1990s. For private equity investors, PIPEs tend to become increasingly attractive in markets where control investments are harder to execute. Generally, companies are forced to pursue PIPEs when capital markets are unwilling to provide financing and traditional equity market alternatives do not exist for that particular issuer.”
–Kennedy Maize
Twitter (kennedymaize)