Executive Summary / Key Takeaways

• NET Power is pursuing the commercialization of its unique Net Power Cycle technology, designed to generate electricity from natural gas while capturing nearly all CO2 emissions, positioning it as a potential provider of low-carbon, firm power in a market demanding grid reliability.
• The Front-End Engineering and Design (FEED) for the first utility-scale plant, Project Permian (SN1), revealed significantly higher-than-anticipated costs ($1.7B - $2.0B), necessitating a strategic pivot towards cost optimization and value engineering, which has delayed the project timeline to no earlier than 2029.
• Despite the SN1 cost challenges, the company maintains a strong liquidity position with over $500 million in cash and investments, providing runway to fund ongoing technology validation at the La Porte demonstration facility and early-stage origination efforts for future, potentially more cost-effective, multi-unit deployments.
• Management is focused on completing key technology validation milestones in 2025 and developing a standardized, modular plant design targeting coastal locations to achieve a competitive long-term Levelized Cost of Energy (LCOE), aiming for $60-$80/MWh or less.
• The company faces significant execution risk in reducing SN1 costs, securing substantial project-level financing ($600M-$900M gap), and scaling its technology and supply chain, while also navigating competitive pressures from established and emerging energy technologies and recent organizational changes.

Setting the Scene: A Novel Approach to Firm, Clean Power

NET Power Inc. is an energy technology company with a singular focus: commercializing its proprietary Net Power Cycle. This innovative process utilizes natural gas to produce electricity while inherently capturing nearly all atmospheric emissions, primarily carbon dioxide. Unlike traditional natural gas plants that vent CO2 or require complex, add-on post-combustion capture systems, the Net Power Cycle employs a unique, predominantly CO2 working fluid in a closed-loop system. This technological foundation positions NET Power squarely within the burgeoning market for clean, firm power – electricity generation that is both low-carbon and available 24/7, regardless of weather conditions.

The demand for such reliable, clean energy is accelerating, driven by factors like the electrification of transportation and industry, and perhaps most notably, the explosive growth of energy-intensive data centers. This has created a critical need for new baseload generation capacity, a need that traditional intermittent renewables like solar and wind, even when paired with short-duration battery storage, struggle to fully address without significant grid infrastructure upgrades and backup power.

In this evolving landscape, NET Power's technology offers a differentiated solution. Its history is rooted in years of research and development, culminating in the construction and testing of the La Porte Demonstration Plant in Texas. This facility has served as a crucial testbed, proving the fundamental physics and operational principles of the Net Power Cycle. The company's strategy is not to become a large-scale power plant owner-operator, but rather to develop, validate, and ultimately license its technology to others, leveraging an asset-light model intended to generate high margins once commercial scale is achieved. This strategy is supported by key partnerships with major energy players like Baker Hughes (BKR), Constellation (CEG), Oxy (OXY), and SK Group, who collectively hold a significant equity stake in the company.

The Technological Edge: Efficiency, Capture, and Flexibility

At the heart of NET Power's investment thesis lies its core technology, the Net Power Cycle. This system burns natural gas with pure oxygen (oxy-combustion) in a high-pressure CO2 environment. The resulting high-temperature, high-pressure CO2 stream then drives a specially designed turboexpander to generate electricity. The CO2 is subsequently cooled, purified, and recirculated, with a portion captured for sequestration or utilization.

The tangible benefits of this approach are significant and, in some cases, quantifiable:

• Near-Total Emissions Capture: The process inherently captures virtually all CO2, achieving a carbon intensity of 40 to 75 grams per kilowatt-hour, dramatically lower than the current U.S. grid average of around 370 g/kWh. Deploying Net Power plants across the U.S. could contribute to a 75% reduction in power generation emissions. Each plant is designed to capture approximately 900,000 tons of CO2 annually.
• Compact Footprint: The high-pressure, dense working fluid allows for a significantly smaller physical footprint compared to traditional thermal plants. A single ~250-300 MW module requires only about 15 acres, meaning a gigawatt-scale fleet (four plants) could fit on roughly 60 acres. This is a distinct advantage over land-intensive renewables.
• Operational Flexibility and Oxygen Storage: The oxy-combustion process requires a dedicated Air Separation Unit (ASU) to produce oxygen. An inherent capability of the cycle is the ability to store excess liquid oxygen. This stored oxygen can then be used to supplement or replace the ASU's output, effectively acting as a large-scale energy storage system for the plant's auxiliary load. Management highlights that a day's worth of oxygen storage equates to 1.2 gigawatt-hours of energy potential, allowing for dispatchable power output ranging from 15 to 80 megawatts. This capability could be a competitive differentiator, potentially offering a lower-cost form of long-duration energy storage compared to traditional batteries, enabling the plant to provide valuable peaking power to the grid even while serving a steady baseload demand.
• Efficiency Potential: While the first-of-a-kind plant faces cost challenges, the technology's fundamental design offers the potential for high thermal efficiency, which is a key driver of the Levelized Cost of Energy (LCOE).

Ongoing R&D is critical to realizing the full potential of this technology. The multi-phase turboexpander validation program with Baker Hughes at the La Porte facility is central to this, aiming to prove performance expectations and refine utility-scale designs through 2027. Phases 1 and 2, focused on burner and combustor testing, are expected to be completed in 2025. Additionally, the collaboration framework with Baker Hughes and Woodside Energy (WDS) to develop an industrial-scale Net Power solution represents a strategic move to apply the technology to smaller, potentially faster-to-market applications with minimal capital outlay for NPWR, opening new licensing avenues.

For investors, the "so what" of this technology is its potential to disrupt the power generation market by offering a truly clean, firm, and potentially cost-competitive alternative to both carbon-emitting plants and less reliable clean sources. The quantifiable benefits in emissions reduction, footprint, and operational flexibility provide a strong foundation for a competitive moat, assuming the company can successfully navigate the significant challenges of scaling and commercializing this complex system.

Project Permian: A Foundational Step and a Cost Reality Check

The path to commercialization hinges on the successful deployment of the first utility-scale plant, Project Permian (SN1), planned for West Texas. The completion of the Front-End Engineering and Design (FEED) in the fourth quarter of 2024 was a critical technical milestone, confirming the plant's design feasibility and identifying no fatal technical flaws.

However, the FEED process also delivered a significant challenge: a total installed cost estimate of $1.7 billion to $2.0 billion. This represents a substantial increase from earlier preliminary estimates ($950 million to $1.1 billion), attributed by management to broad inflationary pressures impacting the entire power sector (citing similar escalations for combined cycle gas turbines now pricing north of $2,200 per kilowatt) and specific site challenges in West Texas. These site-specific issues include the nitrogen content of the local natural gas requiring purification, the inland location limiting modularization and increasing construction labor, and water treatment requirements.

This cost reality has necessitated a strategic adjustment. In the first quarter of 2025, NET Power initiated a post-FEED optimization and value engineering process for SN1 to identify cost reductions. Consequently, the company suspended further long-lead equipment releases in March 2025 to maintain flexibility during this exercise. This pivot, while necessary to improve project economics, has pushed the expected timeline for SN1, with groundbreaking now projected no earlier than 2027 and commercial operation no earlier than 2029, contingent on securing financing.

The increased cost also presents a significant funding challenge. While NET Power has earmarked $200 million of its own liquidity for SN1 and estimates current project economics could support up to $600 million in project-level financing, there remains a substantial funding gap of $600 million to $900 million that must be raised from strategic partners and external capital. Management emphasizes that the company's investment proposition is licensing, not owning and funding these large projects itself, highlighting the need for external capital formation.

Charting the Commercial Path: Origination and Standardization

Recognizing the challenges and lessons learned from SN1, NET Power is refining its commercialization strategy for future deployments. A key focus is building a "shadow backlog" of originated projects in competitive North American markets (including MISO, ERCOT, CAISO, PJM, and Alberta) that meet the criteria of access to low-cost natural gas, a viable power market, and ample CO2 storage. The estimated serviceable opportunity in these target markets is as high as 2,000 Net Power plants.

The origination approach allows for creative structuring of "clean energy hubs," potentially supporting multiple Net Power plants (2 to 20 per hub). Progress is being made on early projects, such as the Northern MISO (OP1) initiative, where an interconnect application has been filed and a sequestration partner is pursuing necessary permits. In Alberta, the company is in the feasibility phase with a local partner, viewing the region as particularly attractive due to favorable economics and conditions for data center growth.

Crucially, the company is shifting its focus towards developing a standardized, modular multi-unit plant design. This is seen as a pivotal cost-down exercise, particularly targeting coastal locations where modular construction and transportation are more feasible, reducing reliance on stick-built methods that drove up costs at the inland SN1 site. The goal is to achieve meaningful cost reductions per unit in multi-plant configurations (potentially 2-4 powertrains per site) to reach a competitive long-term LCOE, targeting $60-$80 per megawatt-hour or less (including the benefit of incentives like the 45Q carbon capture credit, which currently provides approximately $20/MWh). This standardized approach, informed by the SN1 FEED and ongoing value engineering, is intended to enhance scalability and economic viability for future deployments beyond the first plant.

This strategic pivot aligns with the market's growing demand for large blocks of reliable power, particularly from data centers. Net Power envisions future hubs potentially providing dedicated baseload power to co-located industrial users or data centers, while leveraging the oxygen storage capability to offer valuable dispatchable peaking power to the grid.

Financial Performance and Liquidity: Investment in Development

As a pre-revenue development-stage company, NET Power's financial performance reflects its significant investment in technology validation and project development. For the three months ended March 31, 2025, the company reported a net loss attributable to NET Power Inc. of $119.4 million, a substantial increase from $11.4 million in the same period of 2024. This was primarily driven by a sharp rise in operating expenses, totaling $474.6 million compared to $38.8 million in Q1 2024.

Key drivers of the increased operating expenses included:

• Higher Research and Development ($22.6M vs $11.2M) and Project Development ($4.5M vs $0.3M) costs, reflecting increased activity at the La Porte Demonstration Plant and initial work on Project Permian and other originated projects.
• A significant Goodwill Impairment charge of $415.9 million, resulting from a change in the company's business plan and a sustained decrease in market capitalization.
• Increased General and Administrative ($8.7M vs $6.4M) and Sales and Marketing ($1.2M vs $0.8M) expenses as the company built out its corporate structure and origination efforts.
• Higher Depreciation, Amortization, and Accretion ($21.7M vs $20.1M) primarily due to additions to the Demonstration Plant.

Other income/expense included a significant positive change in Earnout Shares and Warrant liabilities ($74.2M gain vs $14.6M gain in Q1 2024), largely influenced by the decrease in the company's stock price. Conversely, interest income decreased ($5.9M vs $7.7M) due to lower cash balances and interest rates. A notable change was the reduction of the Tax Receivable Agreement liability to zero ($21.3M gain), as the realization of related deferred tax assets was deemed not probable.

Cash flow from operations reflects the ongoing investment. Net cash used in operating activities increased to $20.4 million in Q1 2025 from $2.7 million in Q1 2024, driven by higher R&D and project development costs. The company anticipates cash used in operations will increase significantly before generating material cash inflows.

Despite these losses and cash burn, NET Power maintains a robust liquidity position. As of March 31, 2025, the company held $500.8 million in cash, cash equivalents, and investments, down from $530.2 million at the end of 2024. Crucially, the company has no debt. Management believes this existing liquidity is sufficient to fund operations for the next 12 months. The budget for 2025 allocates approximately $190 million net of interest income towards G&A ($45M), La Porte/R&D ($50M), and SN1/Baker turbine development ($100M). The company expects to end 2025 with approximately $350 million in cash on hand. While this provides a significant runway for technology validation and early development, it underscores the need for substantial external capital to fund the construction of SN1 and future plants.

Competitive Dynamics: A Unique Position in a Crowded Field

NET Power operates within a complex and increasingly competitive energy landscape. Its technology competes not only with other clean energy solutions but also with traditional carbon-emitting power generation, particularly Combined Cycle Gas Turbines (CCGTs).

Compared to traditional CCGTs, NET Power offers a clear advantage in emissions capture (near-zero vs. significant CO2 emissions), aligning with decarbonization goals. However, traditional CCGTs currently benefit from established supply chains, lower upfront capital costs (though these have risen sharply to over $2,200/kW), and faster deployment timelines, making them the go-to solution for immediate load growth needs, even if they lack carbon capture.

Against other clean firm power alternatives:

• CCGTs with Post-Combustion Carbon Capture (PCC): PCC adds complexity and cost to traditional plants, and its effectiveness and economics at scale for CCGTs (with lower CO2 concentration in flue gas) are less proven than NET Power's integrated approach. PCC also reduces the net power output of the plant, which is undesirable in a market demanding more capacity.
• Nuclear Power: Nuclear offers zero-emission, firm power but faces significant challenges, including extremely high upfront costs (new projects estimated over $200/MWh LCOE and costing six times more per GW than new gas plants in some cases), lengthy development and permitting timelines (often a decade or more for first deployments), and public perception issues. Management views nuclear as not a credible deployment option for the next ten years, giving NET Power a potential timing advantage.
• Renewables with Storage: Solar and wind are becoming increasingly cost-competitive on an unsubsidized energy basis, but providing 24/7 firm power requires substantial and expensive battery storage (over $200/MWh for batteries). This combination can be costly and may not offer the same duration or flexibility as thermal generation. NET Power's oxygen storage capability is highlighted as a potentially cheaper form of long-duration storage for auxiliary load management.

Within the broader clean energy technology space, NET Power competes with companies like Bloom Energy (BE) and FuelCell Energy (FCEL), which focus on fuel cell technologies, and large industrial gas players like Linde (LIN) involved in CCUS infrastructure. While direct, precise financial comparisons are challenging given NPWR's pre-revenue status and unique business model, general trends indicate:

• BE and FCEL are also pre-profitability, with negative operating margins and cash flows, but have established (though still developing) product lines and some revenue. NPWR's technology is at an earlier stage of commercial deployment but aims for higher efficiency and capture rates.
• LIN is a mature, highly profitable company with significant scale and established supply chains in industrial gases, including components relevant to CCUS. NPWR's challenge is to scale its unique supply chain to compete on cost and deployment speed with such established players.

NET Power's strategic positioning leverages its technology's unique attributes (high capture, compact footprint, oxygen storage potential) and its strong liquidity to pursue a licensing model and target specific markets with favorable economics (low-cost gas, CO2 storage, supportive policies like 45Q). The pivot to modular, multi-unit designs is a direct response to the need to improve cost competitiveness and scalability relative to existing and emerging alternatives. The company believes its technology, if successfully commercialized at target costs, can be the lowest-cost form of clean, firm power in key markets.

Risks and Challenges on the Path Forward

Despite the technological promise and strategic clarity, NET Power faces significant risks and challenges that could impact its ability to execute its vision and deliver value to investors:

• Execution Risk on SN1: Successfully completing the value engineering process to meaningfully reduce the estimated $1.7B-$2.0B cost of Project Permian is critical. Failure to do so, or encountering further technical or construction issues during the eventual build, could further delay the project and erode confidence.
• Capital Formation Risk: The identified $600M-$900M funding gap for SN1 is substantial. The company's ability to attract strategic partners and secure project-level financing is not guaranteed and is contingent on demonstrating improved project economics and continued technology validation.
• Scaling Technology and Supply Chain: Moving from a demonstration plant and a first-of-a-kind utility-scale project to deploying "dozens of these plants per year" by the early next decade requires successfully scaling the manufacturing, supply chain, and construction capabilities for complex, specialized equipment like the turboexpander and ASU.
• Market Adoption Risk: While the market need for clean firm power is clear, customer adoption of a new, complex technology like the Net Power Cycle, especially at potentially higher initial costs than traditional alternatives, is not guaranteed.
• Policy and Regulatory Uncertainty: While carbon capture incentives like the 45Q tax credit are currently favorable, future changes in government policy or delays/challenges in obtaining necessary permits (e.g., Class VI CO2 sequestration permits) could negatively impact project economics and timelines.
• Competition: Established players and emerging technologies continue to evolve. If competitors develop more cost-effective or faster-to-deploy solutions, it could pressure Net Power's market position and pricing power.
• Organizational Changes: Recent departures of key executives introduce potential risks related to leadership continuity and execution, although the appointment of a new COO is intended to mitigate this. The pending litigation also adds uncertainty and potential costs.

Conclusion

NET Power stands at a critical juncture. Armed with a potentially transformative technology capable of delivering clean, firm power in a market desperate for reliable capacity, the company has a clear vision and a strong balance sheet to pursue its goals. The Net Power Cycle's inherent CO2 capture, compact footprint, and operational flexibility, including the unique oxygen storage capability, provide a compelling technological foundation.

However, the reality of commercializing a first-of-a-kind utility-scale plant has introduced significant cost and timeline challenges, as evidenced by the revised estimates for Project Permian. The company's strategic pivot towards rigorous cost optimization for SN1 and the development of standardized, modular designs for future multi-unit deployments is a necessary response to these headwinds and the broader inflationary environment.

The investment thesis for NPWR now hinges on its ability to successfully execute this revised strategy: demonstrating meaningful cost reductions for SN1, completing key technology validation milestones at La Porte, securing the substantial external capital required for the first plant, and proving the economic viability of its standardized, scalable designs for future projects. While the path is fraught with execution, financing, and market adoption risks, the potential reward – becoming a leading provider of low-cost, clean, firm power in a massive and growing market – remains significant. Investors should closely monitor the progress of the value engineering efforts, the outcome of the La Porte testing phases, and the company's success in attracting strategic partners and project-level financing as key indicators of its ability to translate technological promise into commercial reality.