Is NuScale Power Stock a Buy Now?

If you've been following the nuclear energy market, you know that it's been a roller-coaster ride for NuScale Power (NYSE: SMR) stock over the past year. This next-gen small modular reactor company has benefited from positive news surrounding the industry as lawmakers push hard to expand nuclear generating capacity.

Just last October, NuScale's stock soared to $57 per share. Fast-forward to today, and the share price has taken a nosedive, plummeting a staggering 79% to around $12 per share.

So, is this the perfect opportunity to buy the dip in NuScale Power? Let's dive into the company and the work it has ahead of it to find out.

NuScale Power has a first-mover advantage in small modular reactor technology

NuScale Power is a leading company in the small modular reactor space and is the only company to have its SMR design certified by the U.S. Nuclear Regulatory Commission (NRC). The process of obtaining standard design approval from the NRC took NuScale approximately 3.5 years. This certification gives the company a first-mover advantage, especially given the stringent safety requirements for NRC approval.

Its NuScale Power Module is a small, integral pressurized water reactor that combines the reactor, steam generator, and pressurizer into a single, factory-built unit. Its uprated model produces 77 megawatt electric (MWe) of electricity, and it can deploy these modules in up to 12 clusters, providing a combined output of 924 MWe.

Because these modules are manufactured in a factory environment and shipped to the site, they can reduce construction delays and cost overruns associated with traditionally built nuclear power plants. This technology is appealing for facilities with significant power needs, such as industrial factories and data centers.

The SMR developer has a couple of noteworthy projects

While the company has overcome the hurdle of having its design approved by the NRC, it still has a lot of work ahead. One project, RoPower, is located in Romania and aims to deploy six NuScale Power Modules.

On Feb. 12, the Romanian government, along with Nuclearelectrica shareholders, approved a final investment decision, allowing it to secure financing and proceed to pre-EPC (engineering, procurement, and construction) activities. The new facility wouldn't be operational until at least July 2033, a delay from the original 2030 timeline.

Image source: Getty Images.

NuScale is seeking to secure additional deals with the help of its partner, ENTRA1. As part of this partnership agreement, ENTRA1 supports project development, including identifying potential customers, securing permits, and managing the construction timeline.

Last year, ENTRA1 entered into a nonbinding collaborative agreement with the Tennessee Valley Authority (TVA) for up to 6 gigawatts (GW) of SMR capacity. The proposed project would involve approximately 72 NuScale Power Modules across six plants.

NuScale's collaboration with ENTRA1 has faced scrutiny

The collaborative agreement with ENTRA1 aims to shift the funding risk away from utilities or industrial customers by offering customized ownership structures. As part of this, ENTRA1 can finance and develop the plant itself, sign long-term power purchase agreements (PPAs) with customers, or assume up-front construction risk and sell to customers at a later date.

While the partnership helps secure projects and provide financing, it has also come under scrutiny from investors and short-sellers. That's because the agreement requires significant milestone payments from NuScale to subsidize project developments. For example, after the agreement with the TVA, NuScale paid ENTRA1 nearly $500 million even though the agreement was non-binding.

Analysts at BNP Paribas Exane estimate that NuScale could pay ENTRA1 $6 billion over the next 15 years under the agreement. In March, multiple class action lawsuits were filed against NuScale questioning the $500 million milestone payment, and investors also claim that total milestone payments of up to $3 billion under the TVA agreement were not properly disclosed.

Keep an eye on NuScale's progress

NuScale's SMR technology could revolutionize how we use and deploy nuclear energy. That said, the company has its work cut out for it as it seeks to secure more binding agreements amid intense scrutiny of its partnership with ENTRA1. Not only that, but it will take several years before its first power plants are operational, and there remains significant execution risk along the way.

While the lower price point may seem appealing, the stock is still in its very early stages and remains very risky, so most investors may want to avoid it until it makes further progress on its construction project and secures more binding agreements.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.