Good morning, and welcome to the OPAL Fuels Third Quarter 2023 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels third quarter 2023 earnings conference call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer; Ann Anthony and Scott Contino, who will serve as OPAL’s Interim Chief Financial Officer. OPAL Fuels released financial and operating results for the third quarter of 2023 yesterday afternoon, and those results are available on the Investor Relations section of our website. Presentation and access to the webcast for this call are also available on our website. After completion of today’s call, a replay will be available for 90 days. Before we begin, I’d like to remind you that our remarks, including answers to your questions, contain forward-looking statements, which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance, and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are disclosed on slides 2 and 3 of our presentation. These forward-looking statements reflect our views as of the date of this call, and OPAL Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain a discussion of certain non-GAAP measures. A definition of non-GAAP measures used and a reconciliation of these measures to the nearest GAAP measure is included in the appendix of the release and presentation. Adam will begin today’s call by providing an overview of the quarter’s results, recent highlights and update on our strategic and operational priorities. Jon will then give a commercial and business development update, after which Scott will review financial results. We’ll then open the call for questions. And now I’ll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.

Thank you, Todd. Good morning, everyone, and thank you for being here for OPAL Fuels third quarter 2023 earnings call. First, I would like to introduce Scott Contino, who will serve as our interim CFO. Scott has been with Fortistar for over 25 years and has worked with the OPAL companies for all of that period. Scott was also CFO of OPAL up until the spring of 2021, and he has an intimate knowledge of the business and the people. We feel confident in his abilities to stand in while we continue our permanent CFO search. I also want to thank Ann Anthony for her service. Ann was instrumental in helping take OPAL public and our capital raising initiatives. We wish her well in her future endeavors. Moving on, I’d like to highlight several points from this quarter’s results and recent developments. First, in September, we closed on a $500 million credit facility, which streamlines and simplifies our balance sheet and provides a clear funding pathway for our in-construction projects and execution on the next phase of our growth plan. Second, we recently announced a joint venture with South Jersey Industries to construct and operate RNG facilities. We started construction on the first project, the Atlantic RNG facility in Egg Harbor Township, New Jersey. We expect commercial operations to commence in mid-2025. We hope to expand this JV with additional projects shortly. Third, we brought online one of our largest RNG projects in North America, our Emerald project in Michigan. OPAL’s 50% share of this 2.6 million MMBtu design capacity facility is under our JV with GFL and is now through its ramp-up period and has received its EPA pathway registration. We anticipate generating RINs and beginning to sell them in December. Fourth, post the updated set rule in June, RIN prices have continued to strengthen with prices now in the $3.50 per gallon range. We think supply-demand dynamics will continue to support constructive prices through year-end and into 2024. Finally, we are encouraged by the green shoots we are seeing in the downstream fuel station service business based on very positive feedback from numerous major fleets testing the new Cummins 15-liter natural gas engine. We spend a lot of time discussing our RNG production growth and trends on that side of the business, but there is significant potential for our Fuel Station Services business to grow substantially over the next several years, based on what we are seeing and hearing. The OEMs are just now starting to take orders for deliveries in the back half of 2024, and it is something we are starting to get excited about here at OPAL as we look to 2025 and beyond. We also want to highlight several new disclosures after corresponding with the SEC, including separating the reporting of RNG pending monetization from adjusted EBITDA and additional disclosures regarding production capacity metrics. These enhanced disclosures should aid investors in their thinking about the near- and long-term earnings power of the business. For adjusted EBITDA, we will no longer be matching the value of the RNG and environmental credits we produce in the same period we recognized cost of that production. Revenue, net income and adjusted EBITDA will now just reflect the credits that are sold and transferred in a period. RNG pending monetization, now presented in a separate table, includes the volume of stored gas, which we call RNG pending certification, and the inventory of unsold environmental credits held for sale at the end of the period. This table will also detail the environmental credit trading activity in a period. Jon will elaborate later on the additional disclosures regarding production capacity metrics, which will provide clarity on organic growth potential at our operating RNG facilities. With that, I’ll turn it over to Jon.

Thank you, Adam, and good morning, everyone. We are pleased with our accomplishments this quarter. Importantly, we put the Emerald RNG project online as one of the largest facilities of its kind in the U.S. We now have eight RNG projects in operation with an annual design capacity of 5.2 million MMBtu, more than tripling our capacity over the past two years. Third quarter production continues to be aligned with expectations. RNG production was 2.0 million MMBtus for the nine months ended September 30, 2023, a one-third increase from the same period last year. In addition to our operating projects, we currently have six RNG projects in construction, representing an additional 4.4 million MMBtu of design capacity. As Adam mentioned, we added Atlantic, our first SJI joint venture project, to our in-construction RNG portfolio. This project will contribute 0.3 million MMBtu of annual design capacity net to OPAL. We expect Atlantic to commence commercial operations in mid-2025. Moving on to our advanced development pipeline. We continue to make progress. We now have 7.9 million MMBtu of identified biogas in our advanced development pipeline. We continue to target placing 2 million MMBtus of projects into construction in 2023. Together, our operating and construction projects represent 9.6 million MMBtu of design capacity. Adding in our advanced development pipeline, we have 17.5 million MMBtu of annual design capacity in operations, construction and advanced development. This quarter, we’re providing additional detail on how we measure the production output at our RNG and renewable power projects. We have often discussed the annual design capacity of our facilities, which represents the amount of biogas these facilities are designed to process. We are now adding two new metrics: Inlet design capacity utilization and utilization of inlet gas. Inlet design capacity utilization measures the percentage of the quantity of gas available at the inlet of our facilities, compared with the design capacity of these facilities for the relevant period. We generally expect our RNG facilities to begin somewhere in the 70% to 80% range of the inlet design capacity utilization, and expect same-store sales growth and increasing inlet design capacity utilization rates as all of our RNG facilities are in open and growing landfills and we continue to make improvements in gas collection at the well fields. Second, utilization of inlet gas measures how productive we are in converting the gas coming into the RNG facility into product RNG. It is simply the volume of actual production per given period divided by the volume of inlet gas. This metric should be relatively stable between 80% and 90% with fluctuations based on the efficiency of the system, the planned and unplanned downtime at the plant, as well as the quality of the gas, i.e., methane content, which can be aided by well field and gas collection management. We think both of these metrics should clear up some details regarding the period-end or year-end design capacity statistics and also give investors a sense of organic growth potential at our facilities. I want to shift gears now and address construction delays that we’ve seen in the past. We’re pleased to report that we have obtained two major permits, and as a result, the timing associated with the completion of these construction projects has an increased level of certainty. In particular, we’ve received the air permits for both the Sapphire and Polk projects, which were major elements outside of our control. As a result, these projects are now on track to reach commercial operations in Q3 and Q4 next year, respectively. Prince William continues to be on track for Q1 2024 commercial operations, as previously reported. Before we move on to the financial results in the quarter, I also want to take the opportunity to say thank you to Ann. She was a pleasure to work with, and perhaps Ann can say a few words before we pass the call over to our interim CFO, Scott Contino.

Thank you, Jon and Adam, and good morning, everyone. I wanted to take a minute to thank everyone I have worked with both within OPAL and externally. It has been a very rewarding experience to see such an exciting transformation in such a short period of time. I wish everyone at OPAL the very best of luck and will continue to cheer you on from the sideline. I hope that I get a chance to work with all of you again very soon.

Thank you, Jon, and good morning to all the participants on today’s call. Last night, we filed our earnings press release, which detailed our quarterly results for the period ending September 30, 2023. Our 10-Q will be filed later today. The biggest driver of the quarter’s results was environmental attribute pricing and the monetization of RINs in inventory. Looking at the third quarter results compared to the second quarter of 2023, RNG production increased to 0.7 million MMBtus from 0.6 million MMBtus. The increase is largely due to increased inlet design capacity utilization and utilization of inlet gas, along with the partial month of start-up at Emerald. RNG production was 2.0 million MMBtus for the 9 months ended September 30, 2023 compared to 1.5 million MMBtus for the comparable period last year. Revenue in the third quarter was $71 million as compared to $55 million in the second quarter. The main driver of the higher revenues was the sale of 8.4 million RINs at an average realized sale price of $2.83 a gallon as compared to the second quarter where we elected to delay selling in a depressed D3 price environment. Net income for the third quarter was $0.2 million as compared to $114.1 million in the second quarter. Excluding the second quarter’s one-time gain on deconsolidation, third quarter net income was $9 million greater than the second quarter’s $8.8 million net loss. Again, the main driver was the greater sale of RINs. In contrast to prior disclosures, we are now reporting RNG pending monetization separately from adjusted EBITDA. This value will vary each quarter depending on how much we ultimately produce and sell. We will continue to provide a quarter-end value of RNG pending monetization based on a quarter-end price of D3 RINs and LCFS credits, showing a net value to OPAL after consideration of costs such as royalties, dispensing fees, etc. Adjusted EBITDA was $16.5 million in the third quarter. A reconciliation to GAAP results is provided in our earnings release from yesterday and our investor presentation updated this morning on our website. The quarter was negatively impacted by approximately $1.6 million of project ramp-up expenses that were not capitalized and other project development and legal fees also not capitalized. We’ll discuss the impacts of excluding RNG pending monetization for full year 2023 guidance shortly, but first, I want to mention a couple of other drivers of financial performance in the quarter. The Fuel Station Services segment dispensed 33.1 million GGEs in the third quarter, including service volumes. Revenues for this segment increased to $37.3 million for the third quarter as compared to $30 million in the second quarter. This increase in revenue was primarily the result of increased RIN sales, and the segment results continued the trend of improving margins. Renewable Power revenues decreased to $13.7 million for the quarter from $14.5 million in the second quarter. This was primarily due to reduced Arbor Hills revenues as Emerald came online. As Adam mentioned, in September, we entered into a $500 million senior secured credit facility. The credit agreement provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit. As of September 30, 2023, approximately $164 million was drawn down on the facility. As of September 30, 2023, liquidity was $360 million, consisting of $327 million of availability under the credit facility and $33 million of cash, cash equivalents, and short-term investments. As a result, we feel good about our capital position to execute on our growth plan to take advantage of strengthening end markets. At current RIN prices, we expect our full year 2023 adjusted EBITDA guidance to be in the $60 million to $63 million range and RNG production to range from 2.7 million MMBtus to 2.9 million MMBtus. Our adjusted EBITDA guidance includes the anticipated receipt of $8 million to $9 million of ITC sale proceeds in the fourth quarter. This represents approximately 80% of the ITC proceeds from our share of the Emerald project with the balance anticipated in 2024. As we’ve mentioned, the estimated range for adjusted EBITDA excludes the value of RNG pending monetization, which we expect to be in the $20 million to $22 million range. Our reduced production guidance from our March guidance expectations has resulted from previously reported plant start delays at both Emerald and Prince William and not production levels from operating facilities. Plant start delays also shifted some ITC sales into 2024. With that, I’ll turn it back to Jon for concluding remarks.

In closing, we are pleased with continuing success in the execution of our business plan. We are aided by multiple tailwinds, including continued industry consolidation, and we have the capital in place to take advantage of these opportunities, creating value for our stakeholders. We remain committed to furthering OPAL’s vertically integrated mission to build and operate best-in-class RNG facilities that deliver industry-leading, reliable, and cost-effective RNG solutions to displace fossil fuels and mitigate climate change. And with that, I’ll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

Our first question comes from Derrick Whitfield with Stifel. Your line is open.

Good morning, all, and congrats on your operational progress with Emerald and Atlantic. And Ann, best wishes to you on your future endeavors. For my first question, I wanted to focus on the implied EBITDA ramp to $42 million in Q4. Could you speak to the project ITC and RIN drivers, specifically for Q4? And then, more broadly, speak to how you plan to manage the monetization of your RIN bank, which, to your credit, it has only increased in value year to date as shown on slide 19.

Yes, thanks, Derrick. This is Adam. Regarding the guidance for the fourth quarter, which is expected to be in the $40 million to $42 million range, we are including the sale of ITC proceeds from the Emerald project. It's important to highlight that the $8 million to $9 million we mentioned accounts for about 80% of the proceeds we anticipate receiving, with the remaining 20% expected from those ITC proceeds in 2024. Additionally, a significant factor contributing to the large sequential increase in EBITDA for the fourth quarter is the ongoing monetization of the RINs we have generated. I want to remind everyone that the $5 million of RINs we reported at the end of the third quarter included a forward sale contract on most of that at around $3 per RIN. Therefore, we expect to continue selling and have been actively selling the remaining RINs produced throughout the rest of the fourth quarter. These are the main factors driving the fourth quarter results.

That’s great.

In terms of our RIN monetization strategies moving forward, I believe the RIN market is performing as we anticipated with the updated guidance on the RVOs. We expect to adopt a normalized RIN monetization approach, which essentially involves engaging in transactions or setting up sales as we generate the RINs. We anticipate that holding RINs and experiencing some quarter-to-quarter volatility should stabilize as we progress. We have not noticed much trading activity regarding 2024 RINs yet, but we expect that to pick up in the coming weeks and months. As indicated in our previous comments, the supply and demand fundamentals for D3 RINs appear strong, and we expect constructive pricing to continue into 2024.

Thanks for the added detail, Adam. Certainly agree with your thoughts on the macro side. From a follow-up, I really wanted to focus on the competitive landscape for RNG and the recent Morrow transaction. On the one hand, Morrow highlights your stock is undervalued based on your online and in-construction projects alone. On the other hand, it paints a more competitive backdrop for the growth of your ADP. I’d love your take on both sides of the coin.

Derrick, this is Jon. So, we’re really excited about our positioning here that transaction really set or reestablish the mark of kind of a 10x multiple on a company that has 5 million MMBtus of projects and without a lot of growth opportunity and certainly without the same downstream opportunities we have in our advanced development pipeline. So, continues to be constructive and positive in terms of the environment out in the industry. When we look at the competitive landscape, we really think of excellence in execution as really being a differentiating factor. And so, we are not troubled by the consolidation, we’re actually encouraged by it. And at the same time, we continue to look at opportunities ourselves. The $500 million credit facility and other liquidity that we have really gives us a little bit of ability to continue to look for growth opportunities. Our advanced development pipeline is in good shape and growing and really the relationships that we have with our counterparties, I think helps with all of that growth. Maybe, Adam, you’d like to add a little bit.

Yes, just a couple of quick follow-ups there. We put together OPAL Fuels and really embarked on our business strategy. We had a belief that transportation fuel is going to be the highest value of this RNG product. And, that recent guidance out of the EPA in June, which really sets the stage for transportation fuel being very attractive for the next three years, our vertical integration really comes into play as a lot of these landfill owners or feedstock folks are thinking about how to align themselves with folks that can create the most value from the product. So, I think that vertical integration continues to be impactful as we’re competing for new business. I would say, the fact that we’ve got the capital in place also gives confidence to our new partners to continue to work with us and assign us gas rights. And although it was a lot of work putting together, a lot of the new disclosures around our operating plan metrics and that sort of thing. I also think that’s going to be a differentiator where you look at the project that OPAL puts online and operates, I think that also gives counterparties a lot of confidence that they’re going to align with somebody that, A, is going to get a project built and B, is going to operate them efficiently and effectively and C, then also grow those projects organically by continuing to do really good work in the well field to increase gas collection and efficiency of those well fields. So, I think all of those things still stack up really well for us, Derrick.

Our next question comes from Matthew Blair with TPH.

Adam, you mentioned the tight D3 supply-demand, on our numbers, it looks like we will be around 100 million RIN short for 2023. Can I ask you what happens in that scenario? Do you think the EPA brings back the cellulosic waiver credit, or is there a possibility that EPA might retroactively reduce the 2023 RVO for D3 RINs? Any thoughts would be appreciated.

Yes, that's a good question. I'm not sure if the exact shortfall will be 100 million, but refiners can carry some of their obligations into the next year. If the market ends up being short for 2023, many parties can roll forward some of those obligations and try to acquire more for 2024. The market might remain tight through 2024 and 2025. We’ll have to see how the EPA addresses this. I don't expect any actions from the EPA until we get further into 2024, as they will want to align production figures with the final Renewable Volume Obligations. We’ll find out if a waiver credit mechanism is implemented or if they consider other methods to address supply shortages. It wouldn't be surprising if the EPA considers something towards the end of 2024 if the industry is short. However, for now, the price cap mechanism isn't in place, and we share your views on supply and demand fundamentals.

Let me just add that clearly, the EPA is trying to encourage growth in the cellulosic sector. So, everything Adam said is spot on and, I just think that stance by the EPA kind of mitigates any premature changes.

Yes. Thank you, Jon, for highlighting that. I think it’s really important, when you look at the EPA in all of their text that they bring around the RVO, cellulosic biofuels is the core tenet of the renewable fuel standard. And it’s really where they’re trying to push growth and investment. And we see that support continuing, and we’ll leave at that.

Sounds good. Thanks for all the details. Can I ask why you plan to end the year with a backlog of $20 million to $22 million in RINs and LCFS? Is this based on expected price increases for 2024, or is it just a typical timing lag? If that's the case, should we anticipate a similar backlog each quarter moving forward?

Yes, that's a good question. In our internal guidance, we assume that we are selling the RINs we produce for the rest of the year. The year-end balance will depend on the monetization of RNG. The costs incurred in December for gas production will be accounted for in December, with RINs deposited in January. We will continue to provide updates that reflect the value of our produced RNG during the period when costs are incurred to maintain transparency in our economic activities. For example, as we look to 2024, we successfully certified our Emerald project quickly to be able to generate RINs in December. Our Polk project is set to come online in the fourth quarter of next year, and we aim to get those RINs certified within a similar timeframe. However, if there are delays in RIN certification, we will still face production costs for a couple of months, which is why we are detailing this information. For 2023, the figure we are highlighting at year-end reflects the RNG produced and the associated costs, rather than forecasting our RIN balance based on anticipated pricing trends.

One moment for our next question. Our next question comes from Ryan Pfingst with B. Riley. Your line is open.

Yes. Thanks for taking my questions, guys. So with next year expected to be busy, as several projects likely come online, can you talk a little bit about CapEx and potential ITC expectations for 2024?

We’re not going to get into specific guidance for CapEx just yet. We’ll do that when we provide our full year 2024 guidance. What I would say is, as you see our projects coming online with COD, it’s rational to expect that we could be receiving ITC proceeds within 30 days, 45 days. We are hopeful that, it is a smooth process at that point, as we are establishing our documentation and that sort of thing. So, we’ll give some ITC guidance when we also give our 2024 numbers. I think that answered your question.

Got it. Yes. Thank you. And then, you noted that the reduced production guidance stems more from the project delays than operating assets. But curious, have your operating assets faced any weather-related or other issues that might affect production at those facilities?

No. So, our operating assets continue to produce extremely well. We have really built a great team of gas collection experts that get the gas into the facility and of operating experts, who operate at a high degree of utilization for each of the projects. We’re seeing really good availability and efficiency numbers across our projects and really great prospects for maintaining that efficiency and seeing growth there. So, the projects are operating well. I think that the point that you mentioned about delays, which are mostly behind us now for several of the major projects, he’s right about in terms of timing of certain aspects. But we’re on track with our Prince William project for the first quarter, and we’re excited about that project coming online. We’re excited about the fact that we got our permits at both the Sapphire and Polk projects, which really help to anchor those projects in the third quarter and fourth quarter, respectively. And that we continue with the Atlantic project in construction for the middle of 2025 and look for future projects with that SJI partnership. So really happy about the operations of our projects. As these projects go through construction, there’s a little bit of variability in timing, but that tends to be small and identifiable.

Our next question comes from Martin Malloy with Johnson Rice & Company.

I wanted to ask about the impact of the Cummins 15-liter, as you look out to ‘24, ‘25 and build out of your stations and throughput there based on the conversations you’re having with the customers.

The feedback has been very positive so far. I want to share some insights on the Cummins 15-liter engine. When the 12-liter engine was first launched, it was a joint venture between Cummins and Westport. The development costs were covered at the joint venture level, amounting to around $30 million to $40 million in engineering, with limited aftermarket support. After the joint venture expired after 10 years, Cummins acquired the technology and opted not to pursue a 15-liter rollout initially because it would have competed with their existing 15-liter diesel engine. Now that Cummins fully owns the technology, they are fully committed to the 15-liter natural gas engine, having invested approximately $450 million to $500 million to retool their Cape Town plant. They have all their engineering resources dedicated to this project, which has received strong positive feedback. The 15-liter engine will not only generate operational savings by using CNG but also allow fleets to utilize RNG, resulting in zero Scope 1 and Scope 2 emissions, making it an impressive product. However, I want to manage expectations regarding 2024. Currently, OEMs are just starting to take orders, with deliveries expected in the latter half of 2024. Therefore, it won't significantly affect our 2024 numbers related to fuel station services, but we anticipate increased business development activity over the next year as deployments ramp up in 2025 and 2026. Many industry experts believe this product could capture 8% to 10% market share, and Cummins' manufacturing capacity can support those targets. This shift could triple the number of new trucks on the road each year, which would positively impact our fuel station service business looking forward to 2025, 2026, and 2027. The product is also performing well in China, with around 25,000 engines sold there. We are optimistic and currently refer to this as early positive developments. I'm aware that Wall Street focuses on immediate results, but this looks promising for 2025, 2026, and 2027.

And for my follow-up question, just a modeling question, but wanted to find out how the ITC is likely going to come into the income statement. Is it going to be a counter account to the cost of sales for the RNG fuel?

We’re currently anticipating that it would be brought into net income when we receive the ITC. We haven’t done - we haven’t completed the transaction yet. So, still need to work through the key accounting on it, but that’s our current expectation.

Yes. Just a reminder here, these are cash proceeds that come into the Company. So it is cash flow. And I think there are some other folks out there that have recognized it as current period income. That’s our best thinking right now. And as you think about that as well, we would remind folks that this is an earnings stream that will go through at least 2027, where we’re going to have ITC sales starting here in the fourth quarter. We’re going to have the same thing next year in ‘24. ‘25, we’ll also have ITC proceeds. And then, we’ll also have production tax credits from the 45Z. So this is a program that will last through at least 2027, and it’s not insignificant in terms of cash flow that will be provided to the business as we think about continuing to fund our capital program.

Our next question comes from William Grippin with UBS.

First question, just wondering if you could walk us through the change or the impact on the 2023 EBITDA guidance and what 3Q would have been if not for the accounting change in the RNG pending monetization?

Yes, this is Adam. I would say there are really two major impacts to our adjusted EBITDA guidance, or possibly three. The first is the separating of the value of the credit held-for-sale from the RNG that we produce and incur costs for, which is the main driver for our new adjusted EBITDA guidance. When reviewing our guidance as a whole, adjusting for that separation, the biggest factor has been price, which has exceeded our initial projections. Calculating all of our original production guidance suggests that this would have resulted in EBITDA outperformance in the mid-20s range. However, we faced delays in the start-up of our facilities that affected our production forecasts, costing us around 600 to 700 MMBtu, which significantly negated the positive price impact. Additionally, these delays affected the ITC sales we mentioned, with several million from Emerald pushed to 2024, and our Biotown project, which we invested in, will now monetize its ITC in 2024 instead of 2023. We expect some level of ITC to be pushed into 2024. Overall, 2023 shows better prices, but the delays have negatively impacted production and ITC, which has been postponed to 2024. Looking at our third quarter, the pending monetization value of our RNG remained flat compared to the second quarter, indicating no significant changes in the third quarter, but you can clearly see the impact for the full year.

Got it. Appreciate that color. And then just as a follow-up here. I saw in the press release, you noted a change or dispute within EPC. Curious if that’s specific to dairy assets, and are you starting to see cost inflation perhaps getting ahead of your expectations here?

This is Jon. There are two parts to this. First, this concerns a specific dairy project in California regarding the change orders we are receiving from our EPC contractor. This is mainly due to several changes in the upgrader facility and the associated costs, which have put the EPC provider at a disadvantage. They are requesting increased compensation related to these projects, and this is currently under discussion. We anticipate a resolution soon, which will allow these projects to proceed on schedule for Q3 and Q4. What was the second part of your question, William?

Sure. I was just wondering if that might be an indication of cost inflation.

Oh, cost inflation is a reality, and let's not overlook that. However, this situation isn't stemming from cost inflation but rather from the challenges the EPC provider is facing in procuring equipment. The procurement process is ongoing and nearly complete, and it's not directly related to cost inflation. That said, the issue of cost inflation is indeed present, as many contractors, including engineering, civil, and electrical trades, are experiencing significant increases in costs and are trying to pass those costs through. We're definitely feeling upward pressure from that, and some of our equipment suppliers are also affected. As a result, we're closely assessing our equipment choices and procurement methods. When selecting equipment, we prioritize high reliability and efficiency. A key focus during project construction is to ensure that, upon completion, everything functions properly. We've maintained this standard across various projects. The Emerald project, which began delivering gas to the pipeline in mid-September, has successfully progressed through its ramp-up phase, achieving certification from the EPA this month, which enables us to sell RINs starting in December. This reflects a well-functioning team and reinforces our commitment to delivering successful projects.

Yes. The only thing I would add there is, we are always trying to figure out ways to do things more efficiently. And there is no doubt that there have been inflationary pressures on the cost of these projects. And at the same time, we’re still finding really good projects at those 3 to 4 build multiples. And we are in the mode of making sure that these projects are going to work and work correctly. And that’s really our primary objective when we’re building these plants. Just a reminder, these are 20 to 25-year assets, and after you build them, don’t really require additional capital expenditures, if you build them correctly. And that’s really our primary objective. But we do see some opportunities where we’re hopeful that we can start fighting back some of those inflationary pressures that we saw.

Our next question comes from Adam Bubes with Goldman Sachs.

Nice to see the timing around commercial operations of in construction projects remaining on track. Can you just help us think about timing between when a plant is commissioned until it starts contributing to turning? Some of the players in the industry have talked about a lag between plant commissioning and earnings contribution as a result of RIN certification and calibrating the right quality of gas. So, just trying to understand what that looks like for you folks?

Sure, Adam. This is Jon. Thank you for the question. What I was trying to convey with my previous answer is that as soon as we begin putting gas into the pipeline, that generally becomes future revenue linked to the project. The gas gets stored, and we take samples of it to file for certification, which can take about 6 to 8 weeks. For example, we received certification for a project that started producing in mid-September in early November. This indicates an initial lag of about 5 or 6 weeks. The second aspect involves the dispensing and generation of credits. When we dispense in November, those credits will be reflected in our account by the end of December, becoming available for sale then. If we have a forward sales agreement or sell those credits at that time, we can recognize that income, which would effectively be three months after the initial date. The cash from that sale might arrive about a week later, or so. Therefore, if we make a sale at year-end, we might see the cash in the following month. Does that clarify the timing for you?

Yes. That color is very helpful. Much appreciated. And then, my follow-up, I was wondering if you could just provide any more color on the specific projects in the advanced pipeline and expectations for some of the more near-term opportunities to be put into construction. Particularly interested in hearing if there’s any visibility on the timing of the second SJI partnership facility and the WM partnership project as well?

Okay. So, great. So, yes, I’ll take that. So, we are definitely excited about our advanced development pipeline and continue to look at 2 million MMBtus in construction this year as our target. We work out multiple opportunities that are very attractive. And these opportunities that we see are really the result of strengthening relationships across the industry. You’ve seen us report on some waste management projects. We continue to report on GFL partnership, the Emerald project being a poster child of that. And the relationship continues to grow, not just on the upstream side, but on the downstream side as well with additional dispensing that we do for GFL. But now, as you pointed out, outside of landfill owners, there are other strategic partners. SJI particularly wants to invest in this industry and see decarbonization of their pipeline network. And so by investing in projects like these landfill projects and finding partners who can really execute on those opportunities is really going to be helpful for them. And it’s really a case of where one plus one can make three, where they can get benefits to them and we can execute on further opportunities. We did put the Atlantic project into construction, and we see additional opportunities coming from that relationship, really, the stars continue to align in that area. And that advanced development pipeline really represents the opportunities that are before us. Great development team, and continue to work on that. Adam, maybe you want to add something?

In order for a project to transition from advanced development to construction, we require a gas pipeline interconnect agreement to supply gas, a completed RNG gas rights agreement that may include partnership documentation, the final design of the facility, and an EPC contract. These elements have varying timelines, and we are working to finalize them. For example, we might have the gas rights agreement and facility design while we await the interconnect agreement for one project, and for another, we may have the EPC and partnership documents ready but need to navigate a municipal amendment to schedule a meeting. Each project has its unique challenges, but I am optimistic about several of these opportunities moving forward.

One moment for our next question. Our next question comes from Craig Shere with Tuohy Brothers. Your line is open.

Good morning. Thanks for squeezing me in. And congratulations on the progress with the construction and development portfolio. I will just keep it simple since we are at the bottom of the hour. Just want to dig in a little more to Ryan and Adam’s questions around project delays and first project, RIN timing. It seems that peers have been talking about more systemic delays of quarters up to 18 months versus the outlook a year ago, as the industry sees a variety of issues from site permitting, RNG certification that you talked about, supply chain, pipeline connection issues, many of which are all being impacted by broader labor concerns. But you are kind of describing some small, limited variability in project timing at this point, which is good. But I am trying to understand why perhaps you remain so confident about the execution of the future project portfolio growth timeline versus what many in the industry are talking about.

Sure. This is Jon. I will start on that. So essentially, the principal thing that we do when we enter into construction is we start with an EPC contract, as Adam was saying a minute ago. While we don’t have all of our permits at the time that we enter into that contract, we have a general understanding of what that permit process is and likewise, on the pipeline, we generally make sure that we have pipeline options open to us, while maybe not a 100% committed at the time that we start construction, that we have clear cut pipeline options. So the timeframe that we’re seeing is really an 18-month or so timeframe from when we pull the trigger to start construction. And remember, when we say start construction, that’s putting in long lead orders, that’s doing engineering work to finalize engineering for other components. And the actual site construction isn’t really scheduled to start for 6 or 8 months into a construction project. So, if we really contemplate that permits can be acquired during that timeframe, we did see, for example, at the Emerald project that our air permit took a little bit longer and the electric interconnection took a little bit longer, so that a June project ended up being a September project. But the project came right in on budget, in terms of what we were expecting and what we actually achieved. We look to the Polk project as another example of timeframe. We put that into construction in June of this year. And we’re seeing that that project is on track for Q4, we think kind of earlier in Q4. But, so that would keep to that 18-month timeframe that we’re talking about here. And that includes the procurement of all of our major components, the civil contracting, the electric contracting work and the commissioning. So, when we bring a project online, that commissioning then usually starts a couple months or so before the project starts to deliver gas into the pipeline. And then, as we kind of mentioned on Adam’s question earlier that once that project delivers gas into the pipeline, we’re able to grab a gas sample and start the RIN certification process to start selling some of the stored gas that’s produced during the ramp-up period. Ramp-up period can be as long as 3, 4 or 5-month period. But, as we do more projects and our team gets better at it, that ramp-up period can be shortened. As we can see, we’re two months into the Emerald project and substantially through that ramp-up period now. So, we’re kind of pleased with how it’s going. We understand what other people are experiencing in the industry. We’ve had other people tell us of the difficulties that they’re having. But we think that perhaps because of the expertise of our team and the experience of our team that we’re able to keep those timelines fairly well defined. Adam, is there anything you want to add?

I want to emphasize that one of our key advantages at OPAL Fuels is our ability to execute. There may be occasional delays, but we feel confident about the timelines we've established for our construction projects.

Our next question comes from Brian Zhang with Scotiabank.

I have a question regarding the RNG Fuel segment revenue. In comparing the third quarter to the second quarter, the volume has increased by about 16%. Additionally, you sold more RINs than you generated during the quarter. This extra RIN revenue could potentially add about $7 million to $8 million in revenue based on our calculations. However, the segment revenue for the third quarter only increased by about $4 million. Is there anything we should know that might affect other revenue streams, such as brown gas sales? Thank you.

This is Scott. Thanks for your question, Brian. We’ll have to get back to you on that.

Okay. No problem.

If you can reach out to one of us, we’ll get back to you.

Okay. Thank you.

And I’m showing no further questions at this time. I turn the call over to Adam for any closing remarks.

All right. Well, I appreciate everybody’s interest in OPAL Fuels and joining us on the call today. And, we look forward to speaking again soon.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.