Where Will NuScale Power Be in 5 Years?

NuScale Power (NYSE: SMR) is at the exciting forefront of the nuclear power industry. The entire sector is seeing a resurgence of interest as power demand continues to grow and the need for "base load power supply" (a minimum level of electricity consistently needed on a power grid) increases.

The next five years will be pivotal to NuScale Power's future.

What does NuScale Power do?

From a big-picture perspective, NuScale Power is just a good idea right now. It has created a new nuclear reactor design that it is trying to get through the strict regulatory approval process. Unlike the existing nuclear reactors in operation that utilize giant (costly and hard-to-build) reactors, NuScale wants to build small-modular reactors (SMRs) that can be grouped together.

Image source: Getty Images.

This is a very important change of dynamic in the nuclear power industry. Although it is a rare occurrence, when something goes wrong with a large nuclear reactor it tends to be large-scale and captures global attention. The aftermath of a large-scale nuclear incident can leave the plant, and the areas around it, contaminated for a very long time. There's a reason why the approval process for nuclear reactor designs is so strict.

Small-scale modular nuclear reactors are very different. Being small, the potential risk from an incident is lower. Moreover, small modular reactors have different safety systems that are expected to make them generally less dangerous if something does go wrong. But that's just one aspect of the technology. Large reactors are built on-site and are expensive and complicated. Small modular reactors are expected to be built in a factory setting, reducing cost and complexity, and can be moved around (because they are small) to be positioned closer to where the energy is needed. If more power is needed, multiple units can be linked together into a larger operation.

There is a lot to like about what NuScale Power is trying to do in the nuclear power industry -- which is why the stock price has risen nearly 940% in just the last year, as of this writing.

Five years is an important time frame for NuScale Power

NuScale Power is actually pretty far along in the approval process, and management likes to tell investors, "We are the sole SMR technology approved by the U.S. Nuclear Regulatory Commission." In fairness, that's a fact worth bragging about. However, the work isn't done on the approval front. The next big approval decision should come in mid-2025, so NuScale Power's technology still isn't ready for prime time. That means if something should come up that delays the approval process or (worst-case scenario) derails it, NuScale Power stock will probably fall and fall hard.

Even assuming it gets all of the approvals it needs, NuScale Power is still just a start-up company in what is a high-tech manufacturing business. It is working on producing units, or at least what it can produce, but building a manufacturing business from the ground up is hard and complicated work. Things go wrong all the time in such situations, causing delays as the kinks get worked out. Investors would be wise to assume that NuScale Power will have to learn some hard lessons along the way. The goal, however, isn't really to be ready to produce products tomorrow. The company believes it will likely be ready to go "live" by the end of the decade (which is in about five years).

There's a very good chance that it gets through those five years in relative stride, assuming nothing too dramatic happens on the approval front. That's because it is backed by construction company Fluor and it has agreements with large businesses like steel giant Nucor. These companies are helping to fund the cost of developing the technology and could become important customers and/or suppliers. The outlook is fairly positive for NuScale Power.

What could go wrong with NuScale Power?

That said, NuScale Power is not a great option for risk-averse investors. Five years is a long time on Wall Street and the swift stock price advance is really based on investor expectations of a future that is still up in the air. If NuScale Power fails to get the final approvals it needs or has trouble on the manufacturing front, investor enthusiasm could vanish. And, given the nature of nuclear power, a changed view of the energy source could do the same thing (all it would require is a single meltdown).

Still, aggressive investors willing to make a big bet on the growth of nuclear power will probably like NuScale Power. But it will be vital to pay close attention over the next five years because that's when the rubber will start to hit the road. Right now Wall Street is convinced that this will be a good thing, and it very well might be. But the rapid share price ascent over the past year increases the risk if anything, company-specific or industry-wide, should fail to work out as expected.

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Reuben Gregg Brewer has positions in Nucor. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.