Amidst the flurry of NET Power's Q1 2024 earnings call, dominated by discussions about EPA regulations, strategic partnerships, and the validation campaign at La Porte, a subtle yet potentially seismic shift in the company's strategy emerged. While analysts focused on the macro implications of NET Power's technology for the power grid, the company quietly unveiled a compelling vision for its role in powering the burgeoning data center industry. This "invisible elephant" in the transcript, barely mentioned by analysts during the Q&A, could prove to be a game-changer for both NET Power and the tech landscape.

The significance of this shift cannot be overstated. Data centers, fueled by the insatiable appetite for artificial intelligence, are poised to become one of the fastest-growing power consumers in the coming years. NET Power, with its technology offering the elusive trifecta of clean, affordable, and reliable energy, presents itself as the ideal solution for this power-hungry sector. The company's standardized, modular design, scalable from 250 MW to multi-GW deployments, aligns perfectly with the growing scale of hyperscale data centers, those behemoths demanding 750 MW to 1 GW of power, and even beyond.

What makes this strategy particularly intriguing is its potential to decouple data center development from the limitations of the traditional power grid. NET Power's 24/7 dispatchability allows for off-grid deployments, freeing data centers from the constraints of existing transmission infrastructure. This opens up a new world of possibilities, enabling data center development in locations previously considered unsuitable due to power constraints. Imagine data center clusters nestled alongside abundant natural gas reserves and geological formations perfect for CO2 sequestration, a concept NET Power is already actively exploring.

The transcript offers tantalizing glimpses into this new direction. Danny Rice, NET Power's CEO, highlighted the company's mapping efforts, identifying "bright spots" across North America where the confluence of fiber infrastructure, sequestration potential, cooling capabilities, and natural gas access converge. He emphasized the "perfect pairing" of NET Power plants with individual hyperscale data centers and the potential for "fleet deployments" to meet the demands of even larger facilities.

While discussions about customer conversations remain at a high level, the transcript hints at the significant interest from the tech sector. Rice alluded to "serious dialogue with prospective customers" seeking to meet their own power demands, hinting at the potential for off-take agreements directly with data center operators. This aligns with broader industry trends, with tech giants increasingly looking to secure power directly from generators to ensure reliability and price stability.

NET Power's Capital Allocation: A Potential Shift

Here's where the hypothesis gets interesting. NET Power's current projected annual cash burn through 2027 is estimated at $40 million, excluding capital expenditures. Assuming interest rates remain stable, the company's current cash and short-term investments, totaling $625 million, could comfortably fund operations for over 15 years. However, this calculation doesn't factor in the potential acceleration of project development if NET Power secures significant off-take agreements with data center operators.

Imagine a scenario where a tech giant commits to purchasing a multi-GW fleet of NET Power plants over the next decade. This could dramatically alter the company's capital allocation strategy, accelerating the development of additional plants and potentially requiring further capital raises to fund this explosive growth.

The transcript provides a numerical foundation for this hypothesis. Akash Patel, NET Power's CFO, indicated that the company has earmarked $200 million of its existing capital for Project Permian. The remaining $425 million, intended for La Porte operations, the Baker Hughes JDA, G&A, and origination work, could be reallocated if the data center strategy gains traction.

Furthermore, the company has $225 million in potential proceeds from outstanding warrants, providing an additional source of capital for accelerated development. The transcript also reveals that NET Power is exploring a "manufacturing mode approach" to plant deployment, leveraging standardization and modularization to dramatically reduce construction timelines. This approach could enable the company to rapidly scale deployments to meet surging data center demand.

The Potential Impact

While the data center strategy remains nascent, its potential impact on NET Power's trajectory is undeniable. The confluence of soaring data center demand, NET Power's unique technology offering, and the company's strategic pivot towards manufacturing mode and origination projects creates a powerful formula for rapid growth.

This "invisible elephant" in the earnings call transcript, seemingly overlooked by analysts, could be the key to unlocking NET Power's true value proposition, not just as a decarbonization solution for the power grid, but as a vital enabler of the future tech landscape. The company's potential to reshape both the energy and technology sectors is significant, and as the data center strategy unfolds, it will be fascinating to witness its transformative impact.

Hypothetical Growth Scenario: Data Center Off-Take Agreements

The chart below illustrates a hypothetical scenario of NET Power's plant deployments, with and without significant data center off-take agreements. This scenario assumes an accelerated development timeline driven by large-scale commitments from the tech sector.

"Fun Fact: A single NET Power plant can capture enough CO2 in a year to fill the Empire State Building over 30 times! This underscores the massive scale of carbon capture potential associated with this technology."