Q4 2023 NET Power Inc Earnings Call

Participants

Bryce Mendes; IR; NET Power Inc.

Daniel Rice; CEO, Director; NET Power Inc.

Brian Allen; President, COO; NET Power Inc.

Akash Patel

Noel Parks; Analyst; Tuohy Brothers

Thomas Meric; Analyst; Janney Montgomery Scott LLC

Wade Suki; Analyst; Capital One Securities

Betty Jiang; Analyst; Barclays PLC

Presentation

Operator

Greetings and welcome to NET Power Inc. 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 Mendes, Director of Investor Relations. Mr. Mendes, you may now begin your presentation.

Bryce Mendes

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 on ir.netpower.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, but that I'll now pass it over to Daniel Rice, NET Power's Chief Executive Officer.

Daniel Rice

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 three 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 financial updates.
Starting with the macro, we continue to see very positive signals that future load profiles will require more low-carbon generation for two distinct, but related applications, first generation that can load followed 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 plan is designed to serve both of these growing markets and because of low-cost natural gas, the feedstock to our patented process, we believe that 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, then new nuclear, new geothermal and new hydro.
And as we move from project Permian to SN. two and into full-scale manufacturing mode, we'll expect to quickly begin moving down the CapEx curve and really begin to differentiate and that powers affordability from other forms of reliable, clean generation on the topic of reliable generation, one fairly nascent segment that has gotten the market 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 unique the mapping layers are existing and 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 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 the segment. Interestingly, no modifications would be required for our plants. The initial size we're bringing to market with Generation one will be targeting roughly 250 megawatts.
So we can 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 1,000 megawatts. It really lends itself to NET Power's modular design in order to deploy fleets of three to four net power plants to match each data center slowed. The reason why I mentioned this market is it really reinforces the importance of our three pillar strategy.
First prove this technology utility scale. We think the world needs NET Power like no other technology in 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 for utilities to meet the baseload and load following needs of grid 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 the 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, bringing strategic partners to these projects to accelerate their learning in order to accelerate their own license deployments across their targeted operating areas.
On this last point, we're making good progress on our first originated project OP-1 and are actively working on several others, all while advancing discussions with prospective customers across Canada, US, the Middle East, Australia and Europe for deployments beyond serial number one, 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 prove our technology utility scale. We commenced the feed program for our first utility scale plant, which will be located on Oxy Houston site in West Texas.
We added Lummus Technology to fulfill over cooperative heat exchanger supply chain strategy. And we announced development on our first originated project, which relocated in the micro region. All of these accomplishments are stepping stones towards deploying that power plant 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 four phases of combustor in turbo expander equipment validation at La Porte. In a few moments, Brian will provide additional color on these testing campaigns and why they're still important to validating the equipment and expected performance of SN-1 at project premium.
Second, we expect to complete feed a project Permian and we'll begin to form the project strategic on the group. As a reminder, net power considered various federal programs to supplement the funding for us and one, including the DOE grant program deal, we 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 clastic sequestration, which due to the specific geology in West Texas at uptake risk and materially increases sequestration cuts to the project. When we first announced Project Permian in 2022, our plan was for net power in the strategic owner group to fund our first projects. This remains the plan and we expect to announce more details regarding the funding strategy later this year.
Our third 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 six wells that OP-1 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 out faster than expected. The world needs clean, affordable and reliable power. And in my mind, NET Power is the only solution that adequately 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 technology. The world desperately needs.
So with that, I'll hand it over to Brian for operational update.

Brian Allen

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 turbo expander.
Issuing LNTP for the primary Turbomachinery 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 sub-suppliers 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 recruitment of 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 lever cooperative heat exchanger supplier for NET power utility scale plants. I will touch more on this agreement and have 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 feed 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 pain for the major LICENSE components of our cycle.
On slide 9, the validation can 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 turbo expander 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 turbo expander.
We'll see it project Permian. Therefore, the demonstrator turbo expander design architecture, technology and material selections all seek to replicate as closely as possible. The behavior and environment of the utility-scale turbo expander equipment validation will follow four primary phases, and we'll continue through 2026.
The first phase of testing at report focuses on the turbo expanders 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 one and tested alongside with the combustor liner and other hardware to form a single demonstrator size combustor can the combustor cans 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 and full report demonstration conditions.
The third phase of testing will involve scaling the demonstrator size combustor can from Phase two to to a utility scale can with clusters of burners and then testing it with a goal of learning and to optimize the design of the utility-scale combustor that operated project Permian, the fourth and final phase will test the full demonstrator turbo expander, including the validation of materials and design architecture used on the turbo expander for project Permian Baker Hughes and that power will use this testing to tune our analytic and performance simulation models.
With the acquired test data, we will confirm the demonstrator turbo expander 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 the project Permian initial operations.
Turning to slide 10, our strategic supplier agreements signed with Lummus marks a significant achievement for the continued development of the net power cycle. As I mentioned before, Lummus is the designated recuperated heat exchanger supplier for that 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 Natpara.
Lummus has a long history of supporting that 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 and heat exchanger component manufacturers to design and manufacture the most optimal performing and lowest total cost recuperated heat exchanger network for our cycle. They will also be proactively ramping up their capacity to meet future demand for their power plants.
This partnership further expands our competitive and IP modes that power will own all cycle process and controls. Ip developed and less can only sell this proprietary recuperated heat exchanger to net our licensees. Natpara will also benefit from receiving licensing revenue on bonuses, 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, who 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 parts as we evaluate each supplier partnership. We look for win-win opportunities to leverage our partners' 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 for 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 update.

Akash Patel

Thanks, Brian's. 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 spent at report on modifications and upgrades ahead of testing, which is expected to begin this year.
And with 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, progressive joint development program with Baker Hughes and ramp up activity and support.
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 projects. Of the approximately $637 million on balance sheet, we expect your marketing approximately $200 million for our equity contribution to project Permian, approximate $175 million for the CapEx and OpEx outlook quarter, as well as the Baker Hughes joint development agreement and approximately $265 million towards corporate G&A origination work and other expenditures net.
Our 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 were given apparent 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 Note 10 and 11 of our 10-K. That concludes our prepared remarks. I'll now pass it back to the operator to open it up the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Noel Parks, Tuohy Brothers.

Noel Parks

Hi, good morning. It just had a remodel of a couple of Wonder, right run by you when you were talking about different phases of testing. I think in the fourth one, there was a mention of them. We are with the turbo expander that you'll use that process too, sort of confirm your analytics that you and Baker Hughes will be using. Just wondering when you talk about analytics for that, that does stage of evaluation. Are those proprietary metrics you are going to have to build or are they just more sort of standardized benchmark tubulars?

Daniel Rice

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

Noel Parks

Yes, yes, yes. No, there isn't a need. There is a custom-built Baker component, but I'm going to turn it over to Brian to give you some of the technical details of the components.

Brian Allen

Sure. Yes. Thanks, Dan. Yes, no. So the analytical tools definitely are proprietary to to ourselves in the cycle design and to Baker and their various toolsets on how they design compressors, expanders, turbines, et cetera, and so with any model or any simulation, right, you're making some assumptions. So just as a typical engineering, good practice, as you get data, you always go back to your analytics and simulations and verify them more update on.

Noel Parks

Great. Thanks for the clarification. And from and as you one, you've talked a good bit about TM. It started out in securing the supply chain and done. I was also thinking about with the Lummus relationship. Is it I wouldn't expect you necessarily to get into into details, but the Lummus have incentives for adhering to your schedule or timetable. I'm just curious if you could just generally characterize what those would be like just to answer your your ability to manage that.

Brian Allen

Sure. Yes. I can take that then? Yes, they absolutely do. I mean, the strategic supply agreement really aligns our incentives together. There's a 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 for standardized. So it really aligns with our three 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 three pillars with these partners.

Noel Parks

Great. Jeff, I was wondering, thanks thank you.

Operator

Thomas Meric, Janney Montgomery Scott.

Thomas Meric

Good morning, everyone. 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 for how we should think about the challenges and the opportunities for this kind of power offtake, specifically with respect to CO2 infrastructure build-out and is sequestration opportunities?

Daniel Rice

Yes. No, certainly. I mean, it like I mentioned in the prepared remarks, I mean, putting putting these plants in the right location is the first piece. And so and again, it starts with the geology. It starts with mapping it out, I think come in when when most people think of data centers and hyperscale data centers, they big, they only really think of data center alley in Virginia and just because that's where the largest concentration is.
But if you look at just across the United States broadly and I mean data centers everywhere. There's more data centers, I think, in Texas at this point in there on 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 in protons are going from.
And so when you actually start to map all this stuff out and you map out where is their data center demand for future deployments and whether it's natural gas infrastructure on getting access to that gas. And you map out just the subsurface piece, it really starts to eliminate them some really interesting areas that they think and most people I'm totally appreciative like the northern myself region from Illinois, Indiana, Ohio and Kentucky at West Virginia, the White Queen West Virginia become data center early 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 in that power there. And so these are all like sort of like paradigm-shifting opportunities where it really opens up the landscape, but where you can start to establish even lower carbon intensity, lower costing power for these data centers.
And it just so happens that, you know, the design that the team wanted to bring to market in terms of the size of this power plant, the first utility scale one, it really, really correlates fairly well with the power load and for these data center.
So we think it's going to be a really good management, having 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. And but I think I'm just like why we thought it was so important to putting that power in the public spotlight and 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 100%, almost hundred percent capture of that CO2. So we think from just a responsibility and sustainability perspective and net-net, power is going to we think we are the top choice for a lot of this potential application.

Thomas Meric

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

Brian Allen

Sure. Well, on that when it's not, it is really critical, but it's not a long lead at similar to, let's say, the heat exchanger Turbomachinery so we have a little time to get this right. But what we'll look for is, again, a partner aligned with our three pillar strategy.
And if you think about the net power process. You know, 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 develop that report on, 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 scale. And with that respect, our IP that wants to grow with us and we'll focus on cost reduction programs or all the key elements that we want to embed in the other parts.

Thomas Meric

Sure. Perfect. That's it for me. Thank you.

Operator

Wade Suki, Capital One.

Wade Suki

Good morning, everyone. Thanks for taking my question. 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 at geography debate? I hate to put you geographies or type of customers any additional color would be great if you don't mind.

Daniel Rice

Yes, Wade, I think I'm as we kind of said in the opening remarks, the primary application for NET Power is power to the grid to get permanently sequestered in the geology. And that right now is the biggest market for us. And a lot of it happened to be in a lot of just the regulated power markets, myself, PJM, Ercot, Cato on Alberta, the Middle East and into that.
That's obviously the primary market that we're really where we're focusing a lot of the origination efforts that are 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.
I mean that sequestration piece is not just the entirety of the environmental proposition of that power plant put in places like the US where you get that 45Q. It's a huge, huge part of the economic proposition to in 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. And so the can those conversations continue to pick up.
I would say like the one, the one thing that has been surprising is, I think, on a lot of a lot of countries, a lot of companies have come out and commit 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 who are coming to us saying we've done the math and it just doesn't pencil out of 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 customer, my customers, and that's just not tenable.
People are saying assuming you guys can be able to scale up into manufacturing mode. So it's really good and feedback that we're getting from the market. And it's part of like the whole thesis of us taking that power public in the first place was eventually the market's going to come to this realization that there's no solutions out there. Second ensure affordable, reliable, clean power at the scale that the world needs.
And unfortunately, I think the world already committed to this lower carbon future without really having those solutions in hand to get them there in that pathway. And so that power is creating that passing into, 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 across isn't because we wanted to become an independent power producer. We want to be able to create a pathway to bring in prospective future customers participate to operate in really learn the net power plants. 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, take global license deployments in the 2030s and beyond. And so we're starting to have conversations with those customers that are interested in licenses, but they're 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 US. We're seeing it across the world and I think come with things like data centers, you're starting to see entirely new markets pop up load for power demand, both here in the United States and other parts.

Wade Suki

Well, fantastic. Thank you. Not to put you on the spot here would your expectation be that many of you know, within a couple of years of project Permian coming online, we might have SN2 or OP2 coming online shortly. Thereafter or somewhere in that time line. Is that a fair way to think about it?

Daniel Rice

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. And because the first time 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 to send to to be the second utility scale plants. So with OP., that project that we announced, we'll be in the major regions are going to be filing our interconnect application there.
I think that might be a window opens on next week and will be open for 30 days. And so we'll get our interconnect application in there during that window. We're working on our plastics 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 and well in advance of of that plant.
If we said we wanted to be s And two, it's going to be in a position to be to be us into. I think the determination of if it is us into our process and three are US and four is really a function of other other really economic more strategic projects that could leapfrog and become a to.
So what are you really going to be seeing from us doing over the next few years with origination, but also with license opportunities and just continuing to build up the backlog of projects and we'll be able to slot them according to their importance as to the net power strategy into the long-term proposition for the shareholders.

Wade Suki

Fantastic. Thank you so much. Appreciate it.

Daniel Rice

Thanks, Wade.

Operator

Betty Jiang, Barclays.

Betty Jiang

Morning. I have a question for Brian, just wondering if you could provide a bit more color around how you think about the risk profile for each of the validation phases and report on slide 9, I'm just trying to understand basically is phase one and two, just testing the equipment designed by Baker and like what are the most important pieces that needs to get derisked? And then also once you've proven the operations at the demonstration scale is relatively less risky to scale it up to utility scale? Thanks. Sure.

Brian Allen

Thanks for the question. So that 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 tests that, let's say that's the highest risk, but they're building upon each other.
So they're all important, I guess, to say that a reminder that we're developing the utility scale for Bakers, developing utility scale, turbo expander in parallel. So really this is about validation. And yes, both happening completely in parallel.
I don't know if I answered your question fully, but I would say that the all the phases are important. They all build on each other. Each one, retire certain risks or certain results that Baker is looking to see. It's one builds in order from there.

Betty Jiang

Got it so the demonstration equipment is actually what's currently on the plant right now.

Brian Allen

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

Betty Jiang

Got it. What the Baker turbo expander be arriving on-site and want to get connected to the plant?

Brian Allen

Yes, that will be in the 2026 timeframe. So between now and then we're doing the combustor testing, which is a major component of the turbo expander kind of again, what we're doing is really, yes, we're demonstrating the combustion system, both are demonstrate sites what happens in Phase two and the utility scale combustor size. So in essence, before we start project Permian, we will have already operated full utility size can report.

Betty Jiang

Okay, got it. Understood. And a follow up on the licensing fee, just on the licensing fee that's related to Luminous. 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

Yes, I can take that. Agents are Dash and yes, it is additive, right baking. As we said before, we're going to go through a pricing for each license. We sell breakbulk and be predicated upon plant economics, right? You see a plant that is turning 20%-plus returns. Once you come down the CapEx curve, we should be charging more for a license.
So it really is the the license fee for operating constructing and operating in a powerplant will be done done on an individual project by project basis. And as far as the lumpiness 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, but it is a fraction, I say, of like our plant licenses and it's really formulaic two to incentivize them to come down cost curve and share on the benefit of that.
So on Belo's early for us to say what that number is given we haven't placed an order yet for a third party heat exchangers, but there is a formulaic way of us approaching what that equipment licensing fee will be.

Betty Jiang

Got it. Now that's clear Thanks for the color. Thank you.

Operator

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

Daniel Rice

Thanks, everybody for for joining us today. I'm 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 COG on serial number one, which continues to schedule.
And really, as we talked about in the prepared remarks and some of the Q&A in the background, 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 one in doing so really unlocks what we think is going to be one of the largest, most valuable total addressable markets. It's really any any company in the world today. So a 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, and thank you for your participation, and have a wonderful day.