OPAL Fuels Inc. Q1 FY2024 Earnings Call

Good morning, and welcome to the OPAL Fuels First Quarter 2024 Earnings Call and Webcast. As a reminder, this event 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 first quarter 2024 earnings conference call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer; and Scott Contino, OPAL's Interim Chief Financial Officer. OPAL Fuels released financial and operating results for the first quarter of 2024 yesterday afternoon, and those results are available on the Investor Relations section of our website. The 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 everyone 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 described 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 discussion of certain non-GAAP measures. A definition of non-GAAP measures used in the 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 an update on our strategic and operational priorities. John will then give a commercial and business development update, after which Scott will review financial results. We will then open the call for questions. And now, I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.

Good morning, everyone, and thank you for participating in OPAL Fuels first quarter 2024 earnings call. 2024 is off to a solid start. Our first quarter results were in line with our expectations, and we remain on track to meet our full-year guidance. With strong RIN pricing, stable production from operating facilities, strong performance and growth from our Fuel Station Service segment, and new facilities remaining on schedule, we expect to see a nice progression of production and earnings growth throughout the year. Adjusted EBITDA for the quarter was approximately $15 million, in line with last quarter's results when taking into consideration the approximately $16 million of held environmental credit inventory we sold in the final quarter of 2023. Our vertical integration continues to position us well to take advantage of the supportive market fundamentals for D3 RINs in the RFS market, which benefits both our RNG fuel business segment and our Fuel Station Services division as we place more RNG through our dispensing network. We have locked in pricing for the majority of our forecasted 2024 RIN production, which provides us visibility and helps to derisk 2024 in terms of full year financial performance. Operationally, production and efficiency measures were in line with our expectations. Production of 0.8 million MMBtu from our operating facilities remained stable and growing on a same-store basis, with inlet design capacity utilization and utilization of inlet gas remaining between 80% to 90%, consistent with our prior disclosures and above industry averages. We are very excited to announce that our ninth RNG facility, Prince William, has recently commenced operations. John will provide more details later in the call. We also continue to execute on our growth objectives, and today are announcing that construction has begun on our 15th RNG project at the Cottonwood landfill. The project will have an initial design capacity of approximately 0.7 million MMBtu and is 100% owned by OPAL Fuels. We expect the Cottonwood facility construction period to be in line with our recent projects. We continue to make meaningful progress with our development projects and partners and feel confident that we will meet or exceed our $2 million annual MMBtu target for new RNG projects entering construction this year. As previously mentioned, our Fuel Station Services segment continues to perform and grow in line with our expectations. As we mentioned during our last earnings call, we remain cautiously optimistic that the IRS will clarify the rules governing ITC eligibility for our landfill gas-to-RNG projects. Although we did not include any ITC proceeds in the guidance we issued in March, we are hopeful that our new RNG projects will benefit from ITC as we believe was intended. We often talk about industry tailwinds, and we continue to believe there is a great opportunity to expand bipartisan support for our industry. It is important to remember what we do. We capture harmful methane emissions from decaying organic waste and convert them into productive and low-carbon intensity energy products that are drop-in fuels, which utilize existing pipeline and electricity grids. There is growing interest in what should be done with waste in-place methane molecules, and we believe OPAL is well positioned to be a leader in their capture, conversion, and marketing with proven technologies and a proven track record. With that, I'll turn it over to John.

Thank you, Adam, and good morning, everyone. We're proud of our accomplishments this quarter, and as Adam mentioned, believe we are well-positioned to see a nice progression of production and earnings growth over the course of this year in line with our guidance. There are two main reasons for this outlook. First, we have clear visibility to RNG production growth from new projects coming online this year, and second, we expect continued growth from our operating projects. With respect to new projects coming online in 2024, we are very excited to announce that our ninth RNG facility, Prince William, has recently commenced operations and is expected to contribute meaningfully as it ramps production as we move through this year. Prince William, combined with Sapphire and Polk, which are on schedule to begin operations in the third and fourth quarters, respectively, provide the roadmap for us exiting 2024 with 8.8 million MMBtu of annual design capacity in operation compared to 3.9 and 5.2 exiting 2022 and 2023, respectively. Significantly, the project has been producing pipeline-quality gas, and we have submitted the documentation for registration of the Prince William project under the current RFS rules with the EPA. With Prince William, we now have nine RNG projects in operation with an aggregate annual design capacity of 7.0 million MMBtu, tripling since year-end 2021. Then, with respect to increasing output from operating projects, looking at the first quarter results, RNG production increased to 0.8 million MMBtu from 0.6 million MMBtu in the first quarter of 2023. The increase is largely due to the Emerald RNG project's contribution to production volumes and was also complemented by same-store sales growth from our other operating projects. These are trends that we expect to continue throughout 2024. In addition to our operating projects, we currently have six RNG projects in construction, representing an additional 3.3 million MMBtu of annual design capacity. Combined, our portfolio of projects in construction and in operations now has a total of 10.3 million MMBtu annual design capacity. Sapphire, which is one of our 50-50 joint venture projects with GFL, is on track to begin operations in the third quarter of this year. Our share of annual design capacity at Sapphire is 0.8 million MMBtu. Our Polk County, Florida project, where we own 100%, remains on track to begin operations in the fourth quarter of this year. Polk County represents 1.1 million MMBtu of annual design capacity. Atlantic, our first RNG joint venture with South Jersey Industries, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operations in mid-2025. OPAL's share of annual design capacity at Atlantic is 0.3 million MMBtu. As Adam mentioned, we feel confident that we will meet or exceed our 2.0 million annual MMBtu target for new RNG projects entering construction this year. I also want to add a word on development and our pipeline of opportunities. We remain encouraged by our deepening industry relationships and partnerships and continue to see a robust opportunity set of attractive landfill RNG development projects. We also continue to explore opportunities to capture and convert biogas from other feedstocks as a natural extension of our core business.

Thank you, John, 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 quarter ending March 31, 2024. Our 10-Q will be filed later today. Revenue in the first quarter was $65 million as compared to $43 million in the first quarter of 2023. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG fuel and fuel station services, where we dispense all of the RNG for our projects, as well as for our joint venture projects and other third-party RNG supplies. Net income for the first quarter was approximately $0.7 million as compared to a $7.3 million net loss in the first quarter of 2023. The difference was primarily driven by the increase in revenues from the timing of environmental credit sales, but also recognition of the Emerald RNG project coming online and accounted for in equity method investments. Adjusted EBITDA was $15.2 million in the first quarter compared to a negative $1.6 million in the first quarter of 2023, which, as mentioned, was driven by the timing of management's decision to hold back RIN sales in the first half of 2023 and production from the Emerald RNG project during Q1 2024. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website. The RNG fuel segment revenues were $17.7 million for the first quarter as compared to $6.7 million in the first quarter of 2023. The increase in revenues was primarily due to higher RIN sales and production growth. The Fuel Station Services segment revenues were $37.1 million for the first quarter as compared to $20.8 million in the first quarter of 2023. The increase in revenues demonstrates the power of our vertically integrated business model and was primarily the result of higher utilization of our dispensing capacity, new OPAL-owned fueling stations coming online, and third-party construction revenues. Renewable power revenues were $10.1 million for the quarter compared to $15.4 million in the first quarter of 2023. This decrease is primarily due to Emerald RNG, which is using gas that was previously available for a renewable power facility. In the first quarter, capital expenditures were approximately $37.7 million, which includes approximately $10.9 million relating to equity method investments and approximately $3.8 million associated with downstream stations. We continue to expect our capital expenditures to be in line with our 2024 full-year guidance. Our senior secured credit facility provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit. As of March 31, 2024, approximately $187 million was drawn down on the facility, and we have utilized approximately $14 million of our revolver availability to issue letters of credit. As of March 31, 2024, liquidity was approximately $334 million, consisting of $300 million of availability under the credit facility and $34 million of cash, cash equivalents, and short-term investments. As a result, we feel our liquidity and capital resources and access to other sources of capital are sufficient for our growth plans.

In closing, we are pleased with the continuing success in the execution of our business plan and we expect to see a nice progression of production and earnings growth throughout the year. As noted previously, we continue to be cautiously optimistic about clarification of ITC rules for our landfill gas-to-RNG projects. We remain committed to furthering OPAL's vertically integrated mission to build and operate best-in-class biogas capture and conversion projects that deliver industry-leading, reliable, and cost-effective low-carbon intensity energy products that displace fossil fuels and mitigate climate change. 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 will be coming from Derrick Whitfield of Stifel.

I'd like to start with your adjusted EBITDA guidance for the year. Is it safe to assume you remain comfortable with the 2024 guidance based on your line of sight to production growth and your decision to sell forward RINs, which, in combination, derisks the revenue line item?

Yes, OPAL Fuels continues on track to meet its guidance. We forecast a progression of increasing output and EBITDA as Prince William ramps up. Prince William is really going to be kind of the major contributor during the course of the year, while Polk and Sapphire will come on in the fourth and third quarters, respectively, contributing towards the end of the year. It's really the ramp-up of Prince William. As we said, we put our paperwork into the EPA for the project to produce RINs. And we expect that we'll be dispensing from that project at the end of the second quarter and it'll really be contributing starting in the third quarter and through the fourth quarter. So that's really the progression that we see here. As you alluded and we said before, we've sold a majority of the RINs that we expect to produce this coming year, and we believe that, that significantly derisks our EBITDA and cash flows for the year. And as I alluded, our construction projects will start to contribute towards the end of the year, and so we'll see a little more bump right at the end of the year. So we feel really good about where we are on track for our EBITDA, our RNG production, our projects into construction. We announced, obviously, the Cottonwood project. And we think that we'll have a progression of announcements over the next several months that will continue that positive progression as we move towards that guidance. And our CapEx will also hit our guidance that we're looking for. CapEx, obviously, is related to our projects in construction. The projects in construction continue on time and on budget. And that while billings may be a little bit slower at the front-end of a project, they accelerate as you get towards the completion. So a long answer to your question. The short answer is yes.

No, that's great. And just to clarify one point on the sell forward of your RIN exposure. Are you guys doing that out of an abundance of caution? Or are you concerned that the EPA could affect the CWC to address the likely shortfall in RIN generation?

Adam Comora here. I don't believe we will see a cellulosic waiver credit in 2024. We view this as a way to reduce risk and improve our visibility over our EBITDA and cash flows for the year. I want to be cautious since we are active in the market regarding our price forecasts and similar matters. However, we have sold forward a majority of our production.

That makes complete sense. John, for my follow-up, could you provide some insights regarding your project pipeline? I understand you have moved away from disclosing the ADP, but could you share more about the opportunities you are seeing in the market today, particularly those similar to the recently announced Cottonwood project?

We see strong relationships and partnerships with all of our landfill partners, and these are continuing to strengthen. A notable example is our expanding relationship with GFL at our Emerald and Sapphire projects. GFL is innovative and collaborative, and we are seeing our partnership grow. There are increasing opportunities across all our relationships, which we value highly. This approach is rewarding as we collaborate on additional projects. Moreover, our execution on projects is robust; once we complete construction and launch a project, we have confidence in its success and the projected ramp-up timeframe. As more opportunities arise, we anticipate continued growth in our development pipeline.

And our next question will be coming from Matthew Blair of TPH.

You have some big projects coming online later this year with Sapphire and Polk. Could you talk about what you've learned from previous startups that you can apply to make sure these projects are successful and start up on time?

Sure. With our ninth project starting operations, we learn from every project as we move them into construction and then into operation, which benefits each subsequent project. The design we use has been proven effective since our initial projects, Pine Bend and Noble Road, and continues to be applied to the current projects under construction. Although the size of the projects may vary, the fundamental design remains consistent. Our project managers gain more experience with each project, allowing us to apply the lessons learned to the next set of projects, which builds our confidence in their timely and successful launch. We focus on proven technologies, and having a solid design certainly enhances our confidence.

Sounds good. And then one thing that investors ask about is your build multiples on your upcoming projects. Are you willing to share the cost per project for some of these upcoming startups? I think at one point you had listed Prince William at $53 million. Is that still a good number? And then are you willing to share the cost for Sapphire, Polk and Cottonwood?

Yes. This is Adam Comora here. We're not going to get into specific cap costs per project. What I would tell you is, obviously over the last several years, there has been some cost inflation that we think is not unique to OPAL Fuels. And despite that cost inflation over the last couple of years, we're still finding very attractive return on capital projects. And I can tell you we're extraordinarily capital disciplined here at OPAL Fuels. It's in all of our DNA. And we still are finding attractive unlevered IRR return projects. And what I would say is build multiples are lower for larger projects. And if you do move down the curve of smaller projects, the build multiples do lengthen out a little bit. But we are still finding really attractive return on capital projects.

And our next question will be coming from Martin Malloy of Johnson Rice & Company.

First question, I wanted to ask if there are any updates regarding customer adoption or testing of the 15-liter engine mentioned on Slide 18.

Yes, this is Adam Comora again. The testing for fleets has been very successful, and we believe this product offers an attractive financial opportunity for these fleets. They can see substantial returns on capital by deploying it, even if they're currently using CNG, regardless of the sustainability benefits of using RNG. Our outlook remains unchanged. I anticipate being asked about regulatory policy, and we believe this product is a strong choice for fleet adoption. Various stakeholders have discussed the potential ramp-up for this product in the market, and we share that perspective. We see significant potential ahead. In our guidance for the year, we haven't accounted for a rapid adoption curve in 2024 since the trucks aren't expected to begin arriving until 2025. However, the feedback and interest levels we've received remain positive, particularly in light of the ongoing challenges associated with electrification and hydrogen fuel cells for Class 8 heavy-duty trucks. It's becoming increasingly evident that this is a solid solution for heavy-duty trucking. I'll end on that note, reiterating that our thoughts haven't changed since our last discussion on the topic.

For my follow-up question, could you discuss the non-transportation demand and whether you've noticed any interest from data center operators in using RNG as a fuel for power?

Yes, this is Adam Comora again. We are noticing an increasing interest in the use of renewable natural gas (RNG) across various markets, including sustainable aviation fuel (SAF), hydrogen production, and data centers. It's clear that there is a higher demand for RNG than there is supply. Many sectors are looking to RNG as a way to decarbonize. This demand-supply imbalance is likely to drive prices up in different markets. However, we still believe that the best value lies in the transportation fuel sector. Currently, we have not found it advantageous to sell into other voluntary markets, and we recognize the trade-offs between these voluntary markets and the renewable fuel standard. That said, we anticipate that this situation may change in the future, possibly leading to price increases that would make those markets more viable for us. We are monitoring these other markets closely as they continue to evolve. I know there is significant interest in SAF and hydrogen production from RNG, and we will observe how that develops.

And our next question will be coming from Ryan Pfingst of B Riley.

How are you guys thinking about M&A today? And maybe what do you see in the private market and how those valuations might compare to those of publicly traded companies?

John here. There are several indicators in the private market that reinforce our confidence in the value of OPAL Fuels and our vertically integrated business model. Transactions in the private market, like the Enbridge-Morrow deal, help establish valuation benchmarks. We believe there is an ongoing interest among market participants in achieving scale, suggesting the industry is prepared for consolidation. Scale is definitely significant in this context. Beyond landfill opportunities, there are also prospects in adjacent markets that align closely with our operations. Whether we are acquiring another company or being acquired, we see strong opportunities and favorable valuations in the market. That said, we remain committed to our organic growth strategy through vertical integration, which is central to our growth approach. As mentioned earlier, we have a promising array of opportunities in development, and we anticipate significant growth simply by pursuing the opportunities already available to us.

Got it. It makes sense. And then maybe related, could you provide us with any updated thoughts on how you guys are thinking about potentially solving for OPAL's low float and maybe if M&A might be an avenue that you take there?

Yes, that's exactly right. This is Adam here. We have taken some steps to address liquidity and stock trading. Our majority control shareholder recently converted some super voting shares into a new Class B share. We believe this positions us for potential index inclusion and may help improve trading liquidity regarding float. M&A is an interesting avenue, and we are looking at many options. As John mentioned, scaling could be beneficial, and M&A transactions might make sense. Our Chairman often says we aim to find opportunities where 1 plus 1 equals 3, or even 5. If we can identify such opportunities, it would be a good way to enhance our float. However, when it comes to liquidity, these factors do not drive our decisions at OPAL Fuels. Our primary focus is maximizing long-term shareholder value, which we believe we can achieve by building a strong business capable of generating substantial free cash flow.

Next question will be coming from Paul Cheng of Scotiabank.

I think this is for Scott. I apologize for the detailed modeling. In Prince William, I assume that before you get the certification, the gas is being stored. So when you report the RNG volume for sales in the second quarter, will the production actually be reflected there, or will it not show up, leading to a significant increase in the third quarter?

Okay. This is John. I'll provide a brief overview and then discuss things more generally. Essentially, when we produce gas at our projects each month, we will allocate that gas to align with our dispensing capacity downstream to generate RIN credits. These RIN credits will be available for sale after they are minted the following month. So production in April will be minted in May, and those credits will be available for sale in May. Regarding new projects, particularly under the new BRRR rules, we anticipate that our Prince William project will be grandfathered under the previous regulations, meaning the gas will be stored. Once we receive approval for Q RINs, which could take anywhere from a couple of weeks up to six weeks depending on the EPA's schedule, we will be able to dispense that gas. If we dispense gas from Prince William in June, it will result in minted credits in July, which we can then sell. As we bring new projects online, like Sapphire in the third quarter and Polk in the fourth, the new rules may cause us to lose the production from the first or part of the first month based on how those projects qualify. However, the overall timing remains consistent. I’m not sure, Adam...

I want to clarify something that John mentioned. All the gas produced at Prince William, Polk, and Sapphire will be reflected in our production figures for the months they operate. As John said, for Prince William, our EPA certification is complete, so we will receive the RIN value for all the gas produced once we finalize the certification. For Polk and Sapphire, we'll see the production of gas for the initial weeks, but initially, it will only reflect the brown value of that fossil gas. All of this gas is part of our production guidance; it's just a matter of timing for when we transition from the brown value to receiving the RIN certification for those upcoming projects. Does that make sense?

Yes, absolutely. And Adam or John, do you have a cadence of Prince William ramp-up going to look like for the remaining of the year?

I'm sorry, I didn't get the...

Prince William ramp-up?

Yes. Look, project design, a great project design, proven. We think that the ramp-up will be very good. The commissioning went very smoothly. And you kind of see the ramp-up in real time. But because of the proven design, we really expect that the lessons learned from prior projects will be applied to this one, and we should see a good progression. Adam, did you want to add to that?

The only point I want to make is that we design these facilities with the expectation that they will mature and expand. Regarding our inlet gas capacity, we anticipate that these facilities will grow over time, and we are seeing positive growth on a same-store sales basis. So far, everything at Prince William looks promising.

Yes. Large, open, growing landfills. The project is built to take advantage of that growth. And a proven design. All of which really contribute to that growth.

Which really speaks to why we're confident in terms of reiterating our guidance and that sort of thing is Prince William was the chunkiest piece of production growth this year. And it was good that we completed that and are injecting gas into the pipeline.

So do you assume Prince William will get to about 80% plus by the end of the year?

We are not going to discuss the details of any specific facility. Instead, we focus on providing guidance at the portfolio level because we have multiple projects, which allows us to share insights on our overall inlet capacity utilization and the use of inlet gas.

And our next question will be coming from Alex Kania of Marathon Capital.

I have two questions. First, you mentioned some cautious optimism regarding ITC clarity. Do you anticipate a timeline for that in the upcoming months or quarters? Second, concerning the RIN forward sales, was that limited to 2024, or were you able to secure any sales for future exposure into 2025 and beyond?

I will address the second question first because it's straightforward. There is a developing market for 2025, but it's still quite limited, and we haven't made any transactions for that year yet. I'm uncertain if we'll see any movement on this until later in the year. Before I delve into the specifics regarding the ITC, I want to speak more broadly about our regulatory outlook, as we often receive inquiries about a potential Republican administration. It's important to highlight the issue we are tackling: fugitive methane emissions from waste-in-place, whether it comes from landfills, manure, wastewater, or food waste. This issue is starting to gain significant attention. Our position at OPAL is that we should adopt a better approach rather than doing nothing. While capturing these emissions and flaring them might be an option, we believe the optimal solution is to convert them into renewable power or renewable natural gas (RNG). Additionally, I want to emphasize that we do not require new policies or regulations to pursue our growth objectives. What we should focus on is accelerating our business through increased biomethane capture for productive use, which aligns with what most Americans want in the fight against climate change, as well as public policymakers. However, there are challenges that arise in this discussion, particularly around the debate between molecules and electrons, which affects various aspects of our business. Some progressive climate advocates push for complete electrification and view all molecules negatively, which complicates decisions about heavy-duty fleets, focusing solely on electrification without recognizing the existing issues related to waste-generated methane emissions. On the Republican side, there's support that could potentially eliminate barriers to molecule solutions, particularly in discussions about using RNG for hydrogen production or sustainable aviation fuel (SAF) or addressing issues in heavy-duty trucking. We see an opportunity for both parties to embrace a more effective strategy together. Regarding the ITC, an initial adjustment has been made to include biogas property, but there are specific adjustments the industry is pushing for, especially about common ownership in landfill operations. Most of the capital being invested typically doesn’t own the collection systems, which poses challenges. We remain hopeful that this can be resolved, and we expect to hear more on this by early summer. If the common ownership issue isn't resolved, there may still be ways to navigate around it, and we're cautiously optimistic about qualifying for the relevant tax credits. As for the potential political landscape, if Biden secures the presidency, we may see supportive public policies, such as e-RINs. Conversely, if there is a Republican administration, it could pave the way for more practical solutions related to heavy-duty trucking or how we utilize RNG for renewable hydrogen. We find this situation to be promising. While engaging with Democratic representatives, we attempt to convey the urgency of addressing our molecule-in-place issue and the need for ITC and biogas property considerations. Moreover, even if we aim to generate renewable electricity, transferring that RNG to a highly efficient combined cycle plant is more beneficial. Utilizing RNG significantly contributes to environmental justice by enhancing local air quality. These initiatives often receive support from Republican demographics, including agriculture and numerous municipalities. On the renewable power side, we believe many Republicans would support increased biomethane capture and production; it is a reliable power source that bolsters grid stability, enhances energy security, and tends to flourish in rural economies. While you specifically inquired about the ITC, I wanted to provide additional context due to the frequent questions we receive about the implications of a Trump administration. I want to reiterate that we don't need new policies to implement our business strategy and grow as we've discussed. Instead, we see a significant opportunity to enhance our efforts in addressing climate change.

Our next question will be coming from Adam Bubes of Goldman Sachs.

In fuel station services, just wondering how many incremental owned and third-party stations you expect to complete in 2024 to hit the 75% to 90% EBITDA growth outlook? And how you're thinking about the cadence of fuel station builds throughout the year?

Adam, we usually don't provide quarterly guidance with that level of detail. We can follow up regarding the number of stations that will become operational. In the first quarter of this year, we had seven more OPAL Fuels-owned stations compared to last year. The growth in OPAL Fuels Station Services revenue and EBITDA is attributed to four main factors. Firstly, we expect better utilization of our dispensing network, increasing environmental credit revenue from those sites. Secondly, we are seeing improved margins in the construction segment, which were previously impacted by inflation. Thirdly, there are higher volumes from new stations being set up, along with the annualization of last year's stations, which had partial contributions. Additionally, we're experiencing growth in the service side of the business. It truly stems from all four aspects. Looking ahead, we are also optimistic about the growth potential of the 15-liter Cummins engine as we approach 2025 and 2026. However, for this year, the growth in revenue and EBITDA for 2024 will primarily come from the four elements I've mentioned.

And then any update on the two dairy projects, if there's been any resolution with the EPC contractors? And then, broadly, just can you update us on how you're thinking strategically about opportunities for dairy investments down the road?

Sure. This is John. I'll give you an update. On our California dairy projects, there really is no update. Just as a reminder, there is a dispute with the EPC construction contractor regarding some change orders. The contractor is obligated under the EPC contract to continue working while the dispute is resolved. We're proceeding with arbitration, which is continuing in due course. And the construction contractor's obligations are supported by a surety bond. So it's in process. As we think about growth, let's just reiterate that landfill RNG is a terrific opportunity, and there's a lot of space for growth in there. So as we think about our organic growth and the core growth that we're going to be experiencing, that's really going to come from our deepening relationships and joint ventures with our partners in the landfill sector. However, we continue to explore other areas outside of the landfill. So the landfill will be the core of our growth, but there's numerous biomethane opportunities adjacent to the landfill sector. And in addition to dairy, we see opportunities in other agricultural waste, wastewater itself, food waste and other D3 and D5 gas streams. So we continue to explore opportunities of expanding. We believe that there is a really large opportunity set outside of landfill and dairy, and we think that over the course of the coming year, we'll be able to recognize some entree into those areas as we start growing beyond the landfill area.

And then, last one for me, congrats on placing the Cottonwood Project into construction. Just wondering if you can tell us more about that partnership in terms of royalty, CapEx, any further details would be great.

Yes, no. This is Adam here. Royalties in line with our historical averages. The CapEx in line with our most recent experience of the last, I don't know, 3, 4 projects, or 2 or 3 projects that we put into construction. And we had already previously 8-K'd that. So you can see who the landfill partner is, where we still have a couple more gas rights there that we had one in an RFP, and look to continue to deepen that relationship. And it's actually also a really testament to the experience of the team here at OPAL Fuels, where that was a little bit of a development challenge to solve a pipeline issue there, which we were really happy that we were able to do. And I think it's when OPAL executes on those types of projects that we gain confidence with our various partners out there. And we see it being completed in a typical time frame and excited about that one and excited about what else we're finding out there for the balance of the year of new projects.

Our next question will come from Jimmy Larkin of Piper Sandler.

I guess just on the dispensing side, could you maybe talk about what your CI mix is currently and kind of where you expect it to go in the future? And I guess how that might impact how you place your landfill gallons going forward?

I appreciate the question. It's a two-part question. Most of OPAL Fuels' production comes from landfill gas, which typically has a CI score ranging from the low 40s to mid-50s, or 45 to 60. We also have our Sunoma project, which has a significantly negative CI score around negative 238, possibly 283, maybe even 330. Additionally, we dispense third-party gas at our California locations, where we maintain a large dispensing network. We collaborate with third-party dairy suppliers to provide their significantly negative CI gas through our dispensing stations. I don't have the precise figures for how blending the two sources would work, both inside and outside of California, but we believe there are good opportunities to continue enhancing our low-CI supplies through our California network.

And through that, Matt, through that, we participate in the LCFS market, really, through that broad participation in the low-CI third-party gas.

And by the way, that shows up in our fuel station service segment in our environmental credit revenues piece, whereas we continue to place more dairy gas, either from OPAL or other third-party suppliers through our California dispensing network. You'll see growth in that revenue segment for that business unit.

I guess just one more. In the presentation deck, you mentioned eRINs a few times. Is there any updates, maybe on the potential for eRINs going back or have you guys heard anything on that front?

Yes, this is Adam again. As I mentioned earlier, we believe eRINs will eventually be included in the RFS, but the timing is uncertain. We think bipartisan support is possible, especially since the Biden administration has shown strong support for including it in the program. This initiative also seems to resonate with many Republican constituents, as several sectors benefiting from it are located in Republican areas. Furthermore, we don’t see this as a zero-sum situation for corn, soy, or other agricultural biofuels; it won’t negatively impact their markets related to the RINs they produce. We're actively engaging in education and advocacy to promote swift adoption. This could be significant not only for our current portfolio but also for various development opportunities, aligning with sound public policy. While I can't specify an exact timeline, we believe there’s a chance to discuss this with the EPA over the summer and potentially gain Republican support to ensure it remains in place. If Biden wins again, it would likely continue as well. I previously noted that just as eRINs are not a zero-sum game for corn and soy, we don’t view the political landscape as zero-sum for OPAL Fuels. Certain areas may see more progress under a Republican administration regarding this matter. We remain focused on this and will monitor how quickly it gets adopted.

And our last question will be coming from Paul Cheng of Scotiabank.

A real quick one. The utilization of inlet gas is 81% drop 5% from the year ago level. Is there any particular reason contributing to that?

Yes, Paul, I was expecting that question. First, I want to emphasize that we shouldn't focus too much on either metric, whether it's inlet capacity utilization or the utilization of inlet gas in any single quarter. We are a rapidly growing company with larger facilities coming online. Year-over-year, our inlet capacity utilization increased from 75% to 80%. This metric reflects the gas volume entering our facilities, which benefits from improvements in collection systems. The metric you mentioned regarding the efficiency of converting raw biogas into the final product decreased from 86% to 81% year-over-year. However, if we examine it quarter-over-quarter, the utilization of inlet gas rose from 79% to 81% in the fourth quarter. This is indicative of Emerald's growth, and we expect these positive trends to persist throughout the year. As I previously mentioned regarding Prince William now in operation, the startup of a major facility may cause a slight drop in inlet capacity utilization as it ramps up. Specifically, this quarter saw a minor increase from 79% to 81%. The year-over-year drop from 86% to 81% can be attributed to the inclusion of the Emerald facility in this year's figures compared to last year. This is within our expectations, which is why we discuss a range of 80% to 90% for these metrics, acknowledging they can be affected as new facilities come online. We believe Emerald is ramping up effectively. Additionally, I want to highlight our partnership model with landfills, particularly with GFL, who has been a great collaborator and an early investor in these projects. Our work with GFL underscores the strength of this partnership model, as we are aligned in our efforts to optimize both the quality and quantity of gas coming into the facility. Looking back five or six years, it was challenging to engage landfills in seeking such improvements. The bottom line is that year-over-year evaluations of these metrics need to consider the impact of new facilities as they ramp up, and should be analyzed in the context of the overall portfolio.

And I'm showing no further questions at this time. I would now like to turn the call back to management for closing remarks.

All right. This is Adam Comora. Thank you very much for joining us on our first quarter call, and I hope everybody has a great day.

This concludes today's conference. Thank you for participating. You may now disconnect.