Earnings Call Transcript - OPAL Q2 2024

Operator, Operator

Good morning and welcome to the OPAL Fuels' Second Quarter 2024 Earnings Call and Webcast. After the speaker's presentation, there will be a question-and-answer session. 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 to begin. Please go ahead.

Todd Firestone, Vice President of Investor Relations

Thank you and good morning everyone. Welcome to the OPAL Fuels' second quarter 2024 earnings conference call. With me today are Co-CEO, Adam Comora and Jonathan Maurer; and Scott Contino, OPAL's Interim Chief Financial Officer. OPAL Fuels released financial and operating results for the second quarter of 2024 yesterday afternoon and those results are available on the Investor Relations section of our website at opalfuels.com. The presentation and access to the webcast of 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 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 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 and list the 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'll then open the call for questions. And now, I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuel.

Adam Comora, Co-CEO

Good morning everyone and thank you for participating in OPAL Fuels' second quarter 2024 earnings call. Our second quarter results were solid and in line with our expectations. A number of factors are driving our growth outlook for the remainder of the year including a strong end market, which we've taken advantage of by selling forward the majority of our expected RIN sales at favorable pricing, accelerating production growth from our operating facilities, our Sapphire and Pulp RNG projects remaining on schedule, and finally, growth in our fuel station services segment. Adjusted EBITDA for the quarter was approximately $19 million sequentially higher versus the first quarter as we've continued to see improvements across our business segments driven by higher RNG production, increasing throughput of RNG in our dispensing network, and improved margins in fuel station services. We expect continued sequential growth over the balance of the year and are maintaining our 2024 adjusted EBITDA guidance of $90 million to $100 million. One contributing factor to the sequential growth, which we are happy to announce is that our Prince William project has received EPA certification and we expect to begin selling RINs from this project in the third quarter. We remain on track to bring our next two landfill RNG projects Sapphire and Polk County online as expected in the third and fourth quarters respectively. We're executing on our growth objectives and are excited that construction has begun on our 16th RNG project at the Burlington County New Jersey landfill. This project is the second with our joint venture partner South Jersey Industries and represents 0.46 million MMBtus of annual design capacity. Combined with the Cottonwood Project announced last quarter, we have now placed 1.1 million MMBtu of new RNG production annual design capacity into construction this year and are maintaining our guidance of placing at least 2 million MMBtu of new RNG production into construction for 2024. Our fuel station service segment continues to perform and grow in line with our expectations supporting our upstream RNG projects with dispensing in the highest value transportation fuel offtake market. We are maintaining fuel station services adjusted EBITDA guidance of 75% to 90% growth in 2024 compared to 2023. I also wanted to mention a change to our full year RNG production outlook, which is now expected to range between 4.0 million and 4.4 million MMBtu versus previous guidance of 4.4 million to 4.8 million MMBtu, primarily driven by the ramp-up of our most recent facilities which we expect to be short-term in nature. Finally, we continue to believe there is a great opportunity for our industry to expand bipartisan support including renewable electricity produced from biogas. It is important to remember what we do. We capture harmful methane emissions from decaying organic waste in place and convert them into productive and low-carbon energy products that utilize existing pipeline and electricity grids. We believe OPAL is well-positioned to continue to be a leader in the development, operation and distribution of these low carbon intensity fuels utilizing proven technologies and a proven track record. With that, I'll turn it over to Jon.

Jonathan Maurer, Co-CEO

Thank you, Adam and good morning everyone. OPAL Fuels continues to execute on building and operating reliable RNG production facilities and fueling stations. Operationally, second quarter production results were in line with our expectations. RNG production was 0.9 million MMBtus for the three months ended June 30, 2024, a more than 50% increase year-over-year. As Adam mentioned, we're making progress on our strategic growth goals by putting projects into construction, like Burlington this quarter in Cottonwood last quarter, and we're also executing by moving construction projects into operation. We currently have nine operating RNG projects and seven RNG projects in construction. Construction of our new projects is proceeding well and they continue to be on schedule. We expect to bring online three large landfill RNG projects during 2024. We've already brought online the Prince William RNG project and the Sapphire project is mechanically complete and in commissioning, on track for a third quarter completion date. And Polk County continues to be on track for a fourth quarter completion date. We expect to exit the year with 11 RNG facilities online, representing an annual design capacity of 8.8 million MMBtu compared to 2.3 million MMBtu at year-end 2021, more than tripling over the past three years. Atlantic, our first SJI joint venture RNG project, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operations in the third quarter of 2025. Atlantic is expecting to contribute 0.3 million MMBtu of annual design capacity net to OPAL. Construction at our 100% owned Cottonwood landfill RNG project is also progressing well and represents 0.7 million MMBtu of design capacity net to OPAL. We expect the project to begin commercial operations consistent with recent project timelines. Finally, we are happy to have announced the start of construction at the Burlington RNG project. As mentioned, this project is the second RNG conversion project with our joint venture partner, South Jersey Industries and represents 0.46 million MMBtu of annual design capacity for our 50% ownership and helps us progress towards our goal of putting 2.0 million of MMBtu of design capacity into construction this year. Industry tailwinds continue to support OPAL's mission. We are seeing demand strengthen across end markets. With that, I'll turn it over to Scott to discuss the quarter's financial performance.

Scott Contino, Interim CFO

Thank you, Jon and good morning to all the participants on today's call. Last night, we filed our earnings press release which details our quarterly results for the quarter ending June 30, 2024. Our 10-Q will be filed tomorrow. Looking at second quarter results. RNG production increased to 0.9 million MMBtus from 0.6 million MMBtus in the second quarter of 2023. The increase is largely due to both the Emerald and Prince William RNG projects contribution to production volumes. Revenue in the second quarter was $71 million as compared to $55 million in the second 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, including our joint venture projects, as well as other third-party RNG supplies. OPAL's share of revenues from equity method investments for the quarter was $11.2 million as compared to $2.1 million in Q2, 2023, which is not included in revenue as reported on the income statement. Net income for the second quarter was approximately $1.9 million as compared to $114.1 million in the second quarter of 2023. The difference was primarily driven by the gain last year from the deconsolidation of our Emerald and Sapphire projects. Excluding this one-time gain, our adjusted net loss for the second quarter 2023 was $7.8 million. Adjusted EBITDA was $18.9 million in the second quarter as mentioned compared to $5.1 million in the second quarter of 2023, partially driven by the timing of environmental credit sales. 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 Fuel Station Services segment revenues were $39.3 million for the quarter, as compared to $30.0 million in the second quarter of 2023. The increase in revenues was primarily the result of increased RNG marketing fees, concurrent RIN and LCFS sales, and improved margins. Renewable Power revenues were $12.2 million for the quarter compared to $14.5 million in the second quarter of 2023. This decrease was primarily due to the Emerald and Prince William RNG facilities, which are using gas that was previously utilized in renewable power facilities. In the second quarter, capital expenditures were approximately $28.5 million, which includes approximately $5.6 million relating to equity method investments and approximately $7.7 million associated with downstream stations. 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 June 30, 2024, approximately $211.6 million was drawn down on the facility and we have utilized approximately $13.7 million of our revolver availability to issue letters of credit. As of June 30, 2024, liquidity was approximately $302 million consisting of $275 million of availability under the credit facility and $27 million of cash, cash equivalents and short-term investments. We believe our liquidity and anticipated cash flows from operations are sufficient to meet our existing funding needs. We are maintaining our 2024 guidance, except for RNG production, which is expected to be 4.0 million to 4.4 million MMBtus compared to our previous range of 4.4 million to 4.8 million MMBtus, primarily driven by the ramp-up of our most recent RNG facilities. I'll now turn it back to John, for concluding remarks.

Jonathan Maurer, Co-CEO

In closing, we are pleased with this quarter's results. We remain committed to furthering OPAL's vertically integrated mission, together with our partners, to build and operate best-in-class biomethane capturing conversion projects that deliver industry-leading, reliable and cost-effective low-carbon intensity energy products that 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.

Operator, Operator

Our first question comes from Matthew Blair with TPH. Your line is open.

Matthew Blair, Analyst

Thank you and good morning. I guess just in regards to the guide. So you maintained the full year EBITDA guidance, but the RNG fuel production numbers coming down. Could you talk about the moving parts there? And what's the off, why is unit profitability I guess coming in higher than you expected? Thanks.

Adam Comora, Co-CEO

Yes, good morning. This is Adam Comora, and I appreciate the question. At a high level, when we provided our initial guidance of 4.4 million to 4.8 million MMBtus of production, assuming a $3 RIN, our adjusted EBITDA guidance was between $90 million and $100 million. The difference of $400,000 in production between the lower and upper end translates to about a $10 million adjusted EBITDA variance. We also informed everyone that a $0.25 change in the RIN price would affect adjusted EBITDA by approximately $12 million based on the sensitivity provided in our initial guidance. Considering our new production range is $400,000 lower than the original guidance, but the RIN price is performing better than anticipated, along with our forward sales position where we've secured the majority of our RIN production for the year, the RIN price we'll achieve this year will essentially compensate for the production shortfall.

Matthew Blair, Analyst

Okay. Sounds good. And then, Adam, are you seeing any incremental opportunities for selling RNG into non-transportation markets? I know in the past OPAL thought that the utility market just doesn't offer enough value. You don't get paid for the full RIN, but what about any other markets shipping or chemical? Because there are any other opportunities to monetize RNG?

Adam Comora, Co-CEO

Yes. Thanks again for that question. There certainly are increasing opportunities and we are seeing new end markets continue to develop and quite frankly strengthened from a demand perspective for RNG. Marine fuel is one that I think is or we think is particularly interesting as we're seeing a lot of ships being delivered that can run off of renewable methanol. Certainly, there are some export markets over to Europe that we think will develop as well. I know there are some regulatory matters that are still being figured out in terms of tracking RNG to export over to Europe. At this point, we think that there are great applications for RNG in marine fuel and we think that there's going to be continued interest there. The voluntary markets here in the US, I know some folks are contracting out to sell their RNG at fixed price contracts; there are some California utilities that are really interested in purchasing it and some others as well. The discount to the transportation fuel market still seems too great for us. So we have not yet engaged in those other end markets, but we think that they're going to continue to develop, and pricing likely will continue to rise there to effectively try and procure or entice folks away from the transportation fuel market. So we continue to see all sorts of interest in RNG, and I know folks are a little bit longer out talking about renewable hydrogen or SAP. But at this point we still feel like the discount is too great versus transportation fuel and are continuing to pursue the transportation fuel offtake market. But those markets are developing and we are keeping a close eye on them, and I do think they will be part of our portfolio mix just not yet.

Matthew Blair, Analyst

Sound good. Thanks, Adam.

Operator, Operator

Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is now open.

Paul Cheng, Analyst

Thank you. Good morning, guys. Adam and Jonathan, I have two questions. First, maybe it's a new bit from a vision standpoint. As you grow your RNG upstream production, what's the business strategy? Is it to grow your service station business alongside it, or will you maintain a balanced portfolio between upstream and downstream business? Or might it be that you see sufficient scale in the downstream and the industry as well, and therefore, focus more on upstream over time? So what's the business strategy from that standpoint? That's the first question. The second question is, I have to apologize a little bit of the detail. On the second quarter, your LCFS sales price of $100 is actually up sequentially. But if we're looking at the industry, the actual benchmark for LCFS price is down. So how does the mechanic work here? Thank you.

Adam Comora, Co-CEO

All right. Great, Paul. I'll take the first question and then John will talk about our offtake contract in the LCFS market. So I believe the first question was how are we viewing the downstream distribution and marketing business and fuel station business in conjunction with our upstream? I will say we are extremely excited on both the upstream development of those RNG assets and the downstream fuel station business. The fuel station business for OPAL is attractive in its own right. We're achieving good returns on capital on fuel stations we own with fuel purchase agreements, long-term tenure in nature fuel purchase agreements for those stations, and we have a very profitable business to build and service those stations. So even if RNG was not part of the picture, we like the growth outlook for our fuel station service business and we'll continue to grow that business even if we are taking our RNG and finding other offtake markets. It just so happens that there is that terrific strategic tie-in with our upstream business. We're seeing great opportunities to deploy capital both in new RNG projects and the downstream fuel station business. If you went back 10 years, there was a lot of growth experienced by OPAL Fuels building fuel stations and servicing those fuel stations just for the commodity price differential of CNG versus diesel fuel. With that 15-liter engine, we see a lot of opportunities even with just the economics of CNG versus diesel fuel. We think that's going to be an attractive place for us to continue to invest and grow that business and see a lot of conversion potential for the fuel station service business. Do you have a CapEx or growth metric that you can share per year over the next several years? Yeah. I think we do well, we don't give guidance out past 2024. But we do provide detail in our CapEx for how much is being invested in the fuel stations versus the RNG projects. Again the vast majority of the CapEx that we spend is on new biogas capture and conversion projects. I think it's somewhere in the 80-plus percent range. That likely will continue, but we do give it at least on a historic basis in our filings.

Jonathan Maurer, Co-CEO

And the average price of RNG projects obviously is commensurately larger than the average price of the fueling station projects as well. Paul, turning to your LCFS question. We get LCFS credits principally from two sources. One is our Sunoma Dairy project in Arizona. There we have an offtake contract that has a floor price of $100 for the credit. So we enjoy a $100 sale price there as long as the price is below that and that's currently the situation.

Adam Comora, Co-CEO

Yes. Just a follow-up there. That contract goes out for multiple years. So that $100 floor is in place for another 4.5 years.

Jonathan Maurer, Co-CEO

And then the other place we get our LCFS credits is from our downstream dispensing where we get a portion of the credits as a marketing fee for low CI projects that we dispense into California. They're typically recognizing those credits at market prices and those market prices have been in the $45 to $50 range most of the year.

Adam Comora, Co-CEO

Yes. And I think in the second quarter we did not sell at those prices. So we've been holding those credits in inventory.

Jonathan Maurer, Co-CEO

But they're recognized at that price.

Paul Cheng, Analyst

Perfect. Thank you. Really appreciate.

Operator, Operator

Thank you. Our next question comes from Ryan Pfingst with B. Riley. Your line is open.

Ryan Pfingst, Analyst

Hi. Good morning, guys. Thanks for taking my questions. Maybe just a follow-up on CapEx. A couple of months ago we spoke about the maintenance CapEx for your operating assets. Can you just remind us what maintenance CapEx is for the current R&D portfolio or on a dollars per MMBtu basis to help give folks a sense of what your discretionary cash flow looks like?

Scott Contino, Interim CFO

This is Scott Contino. Thank you, Ryan for the question. With respect to maintenance CapEx for our renewable power portfolio, there is a reasonable amount of maintenance CapEx a year that we add back to adjusted EBITDA. It's in the $10 million a year range, something like that, maybe a little less in that ballpark. For our RNG projects, there’s a lot less major maintenance CapEx. That's all capitalized. And I don't have a dollars per MMBtu number to give you, but it's not a large number. In fact since most of our projects are very new, it's not a significant number right now.

Adam Comora, Co-CEO

Yes. This is Adam. Just a quick follow-up there because we've been chatting internally where I think it might be helpful for investors to understand the discretionary free cash flow generation of this business. We've told people historically that we'll have 90% to 95% free cash flow conversion from our EBITDA and I think it's lost on folks and we're going to start really illustrating that. As Scott was just mentioning, one of the beautiful things about our business is after we build these facilities unlike a traditional energy company we don't have to drill or spend capital to produce our fuel. If you remember what we do we drop PVC pipes into landfills and they have perforations and we connect them all together and we apply a little bit of suction to gather all that gas to our facilities. The facilities themselves if you look across the portfolio where it sits today it's in the single-digit millions of maintenance CapEx and these are 20 to 25-year assets and some of our gas rights even go out longer. When you really think about it, the valuation of OPAL Fuels, our discretionary free cash flow after we build these facilities is really pretty phenomenal. And that discretionary free cash flow can be used to invest in new projects and that's what we're doing today because we still see really attractive opportunities to grow the business. In the future, you've got other things you could be doing with that discretionary free cash flow you could make acquisitions, you could pay a really healthy dividend. There's all sorts of things that we think can be a powerful shareholder value driving tool.

Ryan Pfingst, Analyst

Yeah. I appreciate all that color, Adam, and Scott. So for my second question, I guess, just wondering if you have an update on the ITC and any thoughts on timing there, or potential risks you might see if we have a change in administration in November?

Adam Comora, Co-CEO

This is Adam. I believe we are in a good position regarding the final rule that we anticipate will include our RNG projects for the saleable ITC credit. As for the timing, it seems the treasury is aiming to provide comprehensive final guidance on Section 48, rather than issuing piecemeal updates specifically for RNG projects. Our final rule for Section 48 may be pending as they finalize other related matters. Although we've heard expectations of this coming late summer and we're now in late summer, the third quarter, we still hope to see it soon. We maintain our outlook regarding the cash proceeds we expect to generate, which we estimate to be around $40 million, not included in our adjusted EBITDA. We have discussions underway to potentially close some sales while the treasury finalizes that guidance. Additionally, in terms of discretionary free cash flow, we anticipate that it may be accessible over the next few years, especially since all qualifying construction this year will count. We have several projects we believe will pre-qualify before year-end. Our discretionary free cash flow moving forward should also be considered. We are currently determining how it will be reflected in the income statement since they are salable credits. I remain optimistic about a positive final resolution, and while it's disappointing that it’s taking time, it isn’t hindering our efforts to set up projects for pre-qualification and our plans for monetizing those credits once they are generated.

Ryan Pfingst, Analyst

Thanks appreciate that, Adam. I'll be right back.

Adam Comora, Co-CEO

Oh sorry, yeah. Thanks Scott. Just reminded me I missed the change of administration or at least a potential change of party. There's been a lot of Republican support for what we do. I think a letter was sent to the house speaker signed by 18 or 20 Republicans discussing some of the benefits in the IRA and the related tax credits. I don't think that Section 48 is at particular risk, and there is significant Republican support for this specific tax credit within the IRA. Therefore, we don't believe that there's much risk of this part of the IRA coming under scrutiny.

Ryan Pfingst, Analyst

Got it. Thanks for that additional detail.

Operator, Operator

Thank you. Our next question comes from Adam Bubes with Goldman Sachs. Your line is now open.

Adam Bubes, Analyst

Hi. Good morning. Can you update us on just how you're thinking about your capacity to build fuel stations if demand for the 15-liter natural gas engine takes off? How many fuel stations could you build in a given year?

Adam Comora, Co-CEO

So our current build is in that 40% range, 40% to 50% range. That's sort of how we're set up today. It would not be difficult for us to scale up that business. We don't have many constraints to how we would continue to add scaling capacity there; it would be to continue to add to our staff, quite frankly both on the construction side and the service side. OPAL Fuels is in a little bit – we like to think of ourselves as being unique in a lot of ways. One of the ways that we're unique is our ability to attract talent. A lot of folks out there want to be part of the OPAL Fuels team, really like what we're doing. We will be in a good spot to continue to add service techs and construction teams to scale up that business and really don't see any constraints from that perspective if Cummins and others are right in the industry for what the uptake will be for that 15-liter engine.

Adam Bubes, Analyst

And then as we think about the Burlington and Cottonwood project, what's the mark-to-market on how you're thinking about project timing today?

Jonathan Maurer, Co-CEO

It's interesting because the Polk project, which is coming online in Q4, we expect that to be early Q4 and that project will hit around a 15- or 16-month time frame. So I would say that's kind of at the faster end of our projects. We're certainly focused more on the time period leading up to getting projects into construction to ensure that those construction time frames remain tight for a project. An average project, we would think an 18 to 21 month period would be a reasonable time frame for us. Recollect that when we put a project into construction, we have a basic project design, we have the gas rights to execute it and a path to a pipeline and electric interconnection supply. Those are some of our key critical path items for putting a project into construction. Sometimes in the past some of those other items have taken a little while longer to complete. For example, on the Sapphire project, which is in commissioning right now, at the front end the landfill is working on some issues associated with PFOS and other things that delayed our permitting by a couple of months and set that time frame longer. We're seeing projects in the future ought to reach that same 18- to 20-month time frame that I alluded to before.

Adam Bubes, Analyst

And then last one for me. In the beginning of the year I think you guided towards an increase of RNG pending monetization in 2024 million or $15 million. Can you just update us on how you're thinking about the difference between the timing of RNG monetization and actual production in the balance of the year?

Adam Comora, Co-CEO

Yes. This is Adam here. We – once we started talking about our adjusted EBITDA not having that RNG pending monetization component we still think it's helpful to – for folks to see what is being sold in a given quarter and pricing and that sort of thing to get a sense of how the operations are performing. We don't see any major changes to how we were thinking about it but we just don't think it's as impactful anymore to talk about as a guidance metric. Likely as we move into 2025 and beyond, likely not be talking about that as much and talking more about what our production outlook and adjusted EBITDA outlook is and that sort of thing.

Jonathan Maurer, Co-CEO

I think I can illuminate another part of your question and that is that we look at our production across the year and we will sell when the market moves to a good place, those credits on a forward basis. As Adam said earlier in his comments, we've sold a vast majority of our credits for the year. Typically, we'll look at credit projects that are in operation and try to sell as much of those as we can during the year. As projects come online and complete their commissioning, we'll start to sell those as well. And credits are generally salable within the current year or the current vintage year. And with regard to 2025 in the merchant end market, there's not really a deep market there yet. That will develop towards the end of the year. So Adam, I don't know if you wanted to add something.

Adam Comora, Co-CEO

Yes. No, I think maybe I missed that nuance in the question. We are anticipating selling all of our RINs that we generate in 2024 in the calendar year 2024.

Adam Bubes, Analyst

Got it, very helpful. I appreciate the color.

Operator, Operator

Thank you. Our next question comes from Alex Kania with Marathon Capital. Your line is open.

Alex Kania, Analyst

Hi. Good morning. Thanks for taking my question. I was wondering, considering the updated production guidance for this year, do you expect that by year-end all of the operating and commissioning assets will be close to full expected run rate, or will there still be some progress to make as you enter early 2025?

Adam Comora, Co-CEO

This is Adam. I wanted to provide more insight into the production outlook for some of our newer facilities. There can be variability in how quickly these facilities ramp up. This year, at Prince William, we conducted significant well field drilling and expansion before the facility started operations. However, we couldn't integrate all those improvements into the collection system in time. The main issue was flare capacity managed by the municipality, which affected our ability to collect and utilize the additional gas. When we connected the well field expansion to the base collection system, the tie-in was slower than expected, resulting in a delay in gas flow from those additional wells. We are currently working to address this by remediating and re-drilling some of them, which we believe will be a short-term issue, taking several months. Therefore, we are being cautious about when to expect increased gas production from that expansion. We are cautiously optimistic that we will see the benefits of these improvements as the year progresses. We will provide our 2025 guidance once we finalize our year-end results. Overall, we think this challenge is temporary, and the plant is performing well in processing its gas inputs. Additionally, we are optimizing the equipment at our Emerald facility to match the project size, as it is one of the largest RNG projects in the country. We are addressing some ongoing scalability issues with the compressor and doxy skid, and we believe these optimizations are also short-term. We expect both facilities to demonstrate good growth as we approach 2025.

Jonathan Maurer, Co-CEO

We construct our projects larger than the current gas resources available because the landfills we utilize are expanding. Over time, you'll notice improvements in project performance as the gas resources increase. We achieve high availability and efficiency for these projects quickly, typically in the low to mid-90s range, leading to an overall productivity factor in the mid-80s. When we consider the long-term growth in performance, along with the efficiency and availability of our projects, and the initial ramp-up phase that Adam mentioned earlier, we see a positive trajectory.

Adam Comora, Co-CEO

Our initial thinking is really more about 2024 than 2025 at those newer facilities.

Alex Kania, Analyst

Thank you for the information. I would like to follow up on the fueling side and the Class A side. I know there were revisions to the Phase 3 funnel rules, and I'm curious about your thoughts on the adoption and pace of acceleration for CNG-related vehicles in relation to the guidance provided by the EPA.

Adam Comora, Co-CEO

That's a really interesting question and relates to a few points. We are very pleased with the feedback we're receiving about the 15-liter engine and excited that Freightliner is going to roll it out, making it available for fleets with five Freightliner trucks to join PACCAR. We believe it will be a great product for fleets to transition away from diesel and save money. If these fleets work with a renewable natural gas supplier, they'll enjoy all the sustainability benefits as well. However, there are a couple of factors that I think may be hindering adoption. One of them is the recent noise from the EPA regarding Phase III truck regulations, which I believe is prompting people to pay attention to industry feedback. Those in Washington, D.C. are starting to hear what the industry is saying about these regulations. An important focus for us and others in our sector is educating the more progressive climate advocates that not all emissions are harmful. Specifically, our industry collects waste molecules, and heavy-duty trucking is an excellent application for these where other technologies struggle to achieve the necessary emission reductions. We spend a lot of time discussing with Republican politicians how this is a pragmatic solution that supports many of their constituencies in agriculture, municipalities, and rural communities, emphasizing the need to incentivize the collection of biogas emissions at the source. On the Democratic side, we are clarifying that the combustion of molecules isn’t necessarily bad depending on their origin and the available alternatives. The Phase III EPA regulations have led to some confusion, and a few fleets are questioning what these mean for their deployment of RNG. This is why we're focused on outreach and education, as different political outcomes will require us to adjust our advocacy efforts. If a Republican administration is in place, we could quickly advance the use of RNG in heavy-duty trucking, although we may need to work harder on electric policies, such as eRINs or other renewable power incentives. Conversely, if the Democrats take the White House, we could see rapid progress on electricity policies, but we must ensure that heavy-duty trucking is viewed positively in light of those Phase III regulations. Both sides of these policies are sensible, and that’s the message we keep communicating. However, our efforts will be directed more towards whichever areas require additional attention.

Alex Kania, Analyst

Great. Thank you.

Adam Comora, Co-CEO

Thanks, Alex.

Operator, Operator

Thank you. Our next question comes from Thomas Meric with Janney Montgomery Scott. Your line is open.

Thomas Meric, Analyst

Thanks gentlemen. Thanks for the time for a few questions. Just want to touch base on the Cummins 15-liter engine. I know you talked about it extensively so far. Just want to think through potential fleet owners, as they look at supply and demand at CNG, are they contemplating kind of front-loading of infrastructure needed for whatever scale fleet they're looking to operate? Or do they look at it and think the supply of stations is adequate for their needs? And then a follow-up.

Adam Comora, Co-CEO

Yes. Another good question. So we're still in early days of deploying either CNG or RNG as transportation fuel for heavy-duty trucking. I would remind folks that 85% to 90% of what we build is really dedicated fueling distribution centers and now looking at potentially rolling out lanes for folks between those distribution centers and that sort of thing. It takes us also about 12 to 14 months to build a fuel station, which is about the same amount of time for their trucks to get delivered. We see those fleets making those decisions at the same time on fueling infrastructure as they're ordering trucks and they typically go hand in hand where they're happy with the truck. They know what they're specing, they're ordering them and then they're engaged in their fueling strategy. One interesting thing for OPAL fuels is the beautiful nature of our vertical integration, and how certainly RNG has captured the attention of a lot of these fleets because they're also looking for ways to reduce their Scope 1 and Scope 2 emissions. When fleets use RNG versus diesel, the greenhouse gas accounting protocol reflects zero Scope 1 emissions and also zero Scope 2 because that's derived from your electricity usage. This is a really powerful product for them. They're engaging with us at the same time that they're thinking about that truck order, and really working with us to make sure that the fuel station is aligned and they can get their fuel as those trucks are being delivered.

Thomas Meric, Analyst

That's super helpful. And then my follow-up is really on EPA rules or potential EPA rules as they look to potentially update their landfill emission standards from 2016. I'm curious just how you think about that opportunity? What are the puts and takes from the stakeholders? I know it's early days the rule hasn't even been proposed yet. But any color you could provide to us would be helpful just as we contemplate the future of landfill gas and what the EPA is requiring?

Adam Comora, Co-CEO

Yeah. So I think the EPA is really focused on methane emissions wherever they come from. And quite frankly rightfully so, 80% more damaging than CO2. It's really the most impactful action we can take to halt climate change. They are looking at methane emissions from a variety of places, and they already came out with a lot of regulations on pipeline companies and E&P companies on how they're going to do methane monitoring and that sort of thing. The EPA recognizes and folks in D.C. understand that it's essential to continue to promote public policies that incentivize the capture of biogas to ensure it incentivizes the right behavior. What technologies or how they're thinking about methane monitoring and measurement, I think a lot of that is being worked through. We do not have a specific opinion on how to do methane monitoring or that sort of thing. What I do know is that focus on methane emissions is likely going to come into focus, and we think we're in a terrific place to help folks capture it and turn it into a beneficial use. It's going to be a helpful talent for public policy and what we're doing. We're happy to partner with folks to make sure we're capturing as many biogenic methane emissions that we can and turning them into their productive use.

Jonathan Maurer, Co-CEO

Our landfill partners are super focused on collecting methane, and they recognize that this is a real opportunity. The value of the RNG projects has really helped them to increase their focus as well. The more methane they're able to collect, obviously, that turns into higher royalties, as well as for those who have ownership interests in projects, higher equity distributions as well so it's a great focus. In addition to the RNG projects that the policymakers start to focus on methane emissions, particularly at landfills, you'll see the eRIN policy and others really help to promote that capture and conversion, particularly at smaller landfills that may not have the scale to do a larger RNG project. We'll be looking very closely at how we work with our great landfill partners to promote that policy and increase that collection.

Adam Comora, Co-CEO

Yeah. And really what it does is that focus on methane emissions is just going to create greater alignment between us and our feedstock cost where everybody is going to be aligned to make sure we're doing everything that we can to maximize the gas collection and its productive use.

Thomas Meric, Analyst

Great. Thanks gentlemen. Appreciate it.

Adam Comora, Co-CEO

Thank you.

Operator, Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Adam Comora for closing remarks.

Adam Comora, Co-CEO

I appreciate everybody's interest in OPAL Fuels. We are really excited about what we're doing here and our growth outlook and I hope everybody has a wonderful rest of their day.

Operator, Operator

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