OPAL Fuels Inc.

Good morning and welcome to Opal Fuel's third quarter 2024 earnings call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. As a reminder, this event is being recorded. I would like to turn the call over to Todd Firestone, Vice President of Investment Relations, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Opal Fuels Third Quarter 2024 Earnings Conference Call. With me today are co-CEOs Adam Kimora, Jonathan Moore, and Scott Coutinho, Opal's Interim Chief Financial Officer. Opal Fuels released financial and operating results for the third quarter of 2024 yesterday afternoon, and those results are available on the investor relations section of our website at opalfuels.com. 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 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 on-gap measures. A definition of non-GAAP measures and views in the reconciliation of these measures to the nearest GAAP measure is included in an appendix of the release and presentation. Adam will begin today's call by providing an overview of the Corps' results, recent highlights, and an update on our strategic and operational priorities. Don 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 Camora, co-CEO of Opal Fuels.

Thank you, Todd, and good morning, everyone, and thank you for participating in Opal Fuels' third quarter 2024 earnings call. This quarter's results were solid and in line with our expectations as we continue to execute against both our near-term financial goals and longer-term growth initiatives. Underpinning our growth is our continued ability to develop new RNG projects, move them through construction into operation, and leveraging the strength of our vertically integrated business model to both realize the highest value for that RNG and drive market share gains across the business. We are pleased that we have recently commissioned and brought into operation both the Sapphire and Polk RNG projects, our 10th and 11th. When combined with the earlier commissioning of Prince William, we have increased our share of nameplate design capacity and operation up to 8.8 million MMBTUs. an increase of 3.6 million MMVTUs this year. Adjusted EBITDA for the quarter was approximately 31 million, as we continue to see improvements across our business segments. Significant drivers to adjusted EBITDA this quarter were the contribution from Prince William, continued strength in environmental credit sales, and strong results in our fuel station services from both higher throughput of RNG through our dispensing network, and continued positive trends in the construction and services part of this segment. We're also well on track of putting at least 2.0 million MMBTUs of OPWL's share of initial design capacity into construction. With the announced projects of Cottonwood, Burlington, and now Kirby, we have placed approximately 1.8 million MMBTUs of initial design capacity into construction this year. We're seeing continued strength in our downstream business and remain encouraged that we will meet our growth objectives for this segment. We have good visibility on full year results and are maintaining our current guidance. Scott will go into further detail regarding our results and outlook a little later in the call. One other financial item in the quarter that I want to highlight, we saw the first monetization of IPC credits in the third quarter for net cash proceeds of 8.6 million. included in our net income, but not in our adjusted EBITDA. We expect continued investment tax credits from projects that have recently entered operation and from projects that are in construction. Finally, I want to add some commentary on the results of the election. Over the past year, we were frequently asked how our business would be impacted under either a Democratic or Republican White House or control of Congress. We continue to feel that what we do doesn't come down to partisan politics. Humans and the agricultural sectors create organic waste that decompose and creates biogas or biogenic methane. It is common sense climate and energy policy to capture those emissions with cost-effective and proven technology and use them productively for either renewable electricity generation or as RNG. RNG is attractive as a renewable fuel because it is available today, utilizes existing pipeline infrastructure, and proven cost-effective technology that can then be used to decarbonize difficult sectors, such as heavy-duty trucking. We see an increasing focus on the need to address the rising electricity demand, and we believe electricity produced from biogas can play an important role as it can serve as baseload renewable power, increasing local grid stability. With that, I'll turn it over to John. John?

Thank you, Adam, and good morning, everyone. As Adam mentioned, 2024 has been a busy year for Opal Fuels. With Prince William, Sapphire, and now Pulp commencing commercial operations, we have 11 RNG projects in operation. Our operating RNG facilities represent an annual design capacity of 8.8 million MMBTU, organically doubling over the past two years. We note that we received EPA certification for our Sapphire project in the quarter. So the project is able to generate RINs under the updated BRR provisions. Certification for PULC will follow shortly. Third quarter productions were in line with our expectations. R&G production was 1.0 million MMBTUs for the three months ended September 30th, 2024. This production is more than a 40% increase year over year and higher than the second quarter 2024. We're seeing both inlet design capacity utilization and utilization of inlet gas ratios in line with expectations and reflective of having several new facilities coming online and in their ramp-up phase. Shifting gears to our in-construction portfolio, we have put three projects into construction this year and now have a total of six projects in construction representing 2.6 million MMBTU of OPAL's share of annual design capacity in addition to our 11 operating projects. Among the projects put into construction, we're happy to have announced the start of construction at our Kirby Canyon landfill project in Santa Clara, California earlier this week. Opal owns 100% of the RNG facility. Kirby will contribute 0.66 million MMBTU of annual design capacity net to Opal. We are well positioned headed into year-end and beyond. Market fundamentals are supportive, and we expect additional opportunities will result from our growing relationships. With that, I'll turn it over to Scott to discuss the quarter's financial performance. Scott?

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 September 30th 2024. Our 10Q will be filed on Tuesday. Looking at third quarter results, RNG production increased to 1.0 million MMVTUs from 0.7 million MMVTUs compared to the third quarter of 2023. The increase is largely due to both the Emerald and Prince William RNG projects contribution to production volumes. Revenue in the third quarter was $84 million as compared to $71.1 million in the third quarter of 2023. The main driver for the increase in revenues was increased production and the timing and pricing of environmental credit cells, 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. OPWL's share of revenues from equity method investments for the quarter was $11.7 million as compared to $4.7 million in Q3 2023, which is not included in revenue as reported on the income statement. Net income for the third quarter was $17.1 million as compared to $0.2 million in the third quarter of 2023. The difference was primarily driven by growth in our fuel station services business and the sale of investment tax credits. Adjusted EBITDA was $31.1 million in the third quarter, compared to $16.5 million in the third 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. As a reminder, we've added project development and startup costs as a separate line item on the income statement to reflect costs associated with projects that are in pre-construction or in startup phase. This quarter's adjusted EBITDA includes a $3.8 million add-back of certain project development and startup costs that are incremental to the ongoing operational expense with respect to the Prince William virtual pipeline. These costs are temporary in nature and expected to be incurred until mid-2025. The total virtual pipeline costs are included in the project development and startup costs line item on the income statement and the add-back to adjusted EBITDA. RNG fuel segment revenue was $25.9 million for the third quarter as compared to $20.1 million in the third quarter of 2023, primarily due to the addition of our Prince William RNG facility. Fuel station services segment revenue was $45.4 million for the third quarter as compared to $37.3 million in the third quarter of 2023. The increase in revenues was primarily the result of increased RNG marketing fees, increased construction, and service revenue. Renewable power revenue was $12.8 million for the quarter, compared to $13.7 million in the third quarter of 2023. Year-to-date capital expenditures were $95.6 million, which includes $22.8 million relating to equity method investments, and $16.2 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 September 30, 2024, $231.6 million was drawn down on the facility, and we have utilized $14.1 million of our revolver availability to issue letters of credit. As of September 30, 2024, liquidity was $285.3 million, consisting of $254.3 million of availability under the credit facility and $31 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. As Adam and John discussed, we are maintaining our current 2024 guidance. I'll now turn it back to John for concluding remarks.

In closing, we are happy with this quarter's results. We remain committed to furthering OPWL's vertically integrated mission together with our partners 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. And with that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in Opal Fuels.

Thank you. At this time, we'll conduct a question-and-answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please wait while we assemble the roster. Our first question comes from the line of Matthew Blair of TPH. Your line is now open.

Thank you, and good morning. Adam, I appreciate your initial comments on the election. Maybe we can dig into that a little bit more. How much risk do you see to areas like the D3 RVO and the ITC? from the election results. And, you know, I think the general take is that the election results are negative for renewable fuels. But I'm curious, are there any silver linings here? Are there any areas like permitting that could get a little bit easier going forward? Thank you.

I appreciate that question, Matt. And thanks for joining the call. So a couple of things on the election outcome. I guess your first question regarding D3 RVO volumes. I think there's a couple of important things to remember. First is that we don't think that there really is liquid biofuel opposition or anything within some of the other stronger Republican constituencies regarding D3 volumes. We're actually aligned with a lot of those same participants in the Renewable Fuel Standard where they want to see strong D3 RVO volumes because if those volumes are set too low, then you have the potential impact of D3s going down into those liquid RIN markets. So, you know, in all of our discussions with the other folks in the RFS, everybody's supportive of strong D3 volumes. Second thing I would say is that the statutory objective of the Renewable Fuel Standard is 16 billion cellulosic D3 RINs. So in some sense, You know, we think, and that's been reiterated time and time again, so we think in some sense the Chevron doctor maybe supports, you know, the continued growth and, you know, growing RVO volumes in the cellulosic category. I would also add that, you know, from an IRA perspective and also with those D3 RVOs, we have a lot of support amongst a lot of what most folks consider more red areas and the investments that are being made in those facilities. So we really do believe what we do is bipartisan, and we're seeing more and more Republicans come along looking for smart climate policy. And the capture of these waste methane emissions we think are going to continue to be supported You know, a lot of times, you know, people ask about the cellulosic waiver credit, and I think as everybody knows, there is no cellulosic waiver credit in place, but the EPA has that ability. You know, you could also be in a situation where if there's more support for those agricultural biofuels, that's supportive for D4 and D5 pricing, which has an impact on a potential cellulosic waiver credit. So we don't know if the cellulosic waiver credit comes back or not. If it does, we think that there's plenty of reasons why there could be additional support for it. I think one of our competitors also mentioned if folks aren't aware of how the formula works, it's also inversely correlated to gas prices. So if there is a downdraft in pump prices, that's also supportive of a piece of the cellulosic waiver credit. In general, outside of the RFS, and it should also be noted, you know, that we feel that the RNG industry is well supported by Republicans as far as the tax credit goes. There was a hearing in D.C. about methane abatement, you know, potential from landfills, and the first two comments came from Republican senators talking about their support for inclusion of biogas conversion equipment in that Section 48 agreement. And not long after that, we saw that technical correction. So we believe our industry is, you know, I know a lot of investors like to throw energy transition in one bucket. You know, we really do believe we are a good answer for both parties in terms of smart, common sense climate policy. What we're really excited about in terms of that election outcome is what it could mean for our fuel station service business. and what it could mean also for the potential for renewable power and baseload green electricity, you know, as people are really starting to focus on, you know, how can we increase generation capacity, whether it's for, you know, baseload green power for AIs or data centers. And we think the ERIN policy fits squarely in the middle of that and supports a lot of more red areas or sectors. And, you know, The last piece on the election is we think it could have a dramatic impact for natural gas or CNG or RNG for heavy-duty trucking and are really excited about what a new energy policy could mean regarding using natural gas in that kind of a sense. So I'll stop there. It's obviously something that we focus on, but we think any outcome in the election is a positive because I feel like we've been stuck you know, in limbo on a lot of different policies. And now that we do have the election behind us, we're excited that there could be a lot of work done on numerous fronts.

Sounds good. And then we understand that most of your RINs are sold forward. We also noticed that your realized price moved up quite a bit in the quarter. I think it was $3.22 a gallon versus last quarter at $3.03 a So I guess one, could you share how much of your RIN production has sold forward for 2024 and 2025? And then two, when you do sell RINs forward, is the price locked in at the point of the sale or is it still connected to changes in spot RIN prices? Thanks.

Yeah, no, I appreciate that question there. So the last part of the question is we have sold all of our RINs for 2024 and When we say that we sell them forward, what that means is we transact at whatever the current price is, and then we deliver them in those forward quarters. So those sales and that realized price that you saw in the third quarter, those were transactions that we entered into earlier in the year for third quarter delivery. So you do lock in the price when you sell them on your forward sales, and then you deliver them in whatever period that you agree to deliver them.

Got it. Okay. So, basically, just a coincidence that spot prices moved up and your contract price moved up. Okay. Sounds good. Thank you.

Thank you. We'll move on to our next question. Our next question comes from the line of Alex Kenia of Marathon Capital. Your line is now open.

Thanks. Thanks for giving a pretty good outlook. I'm kind of curious about just thinking about the voluntary markets right now and your view on how they're evolving. You know, just thinking about this broader, like, data center theme and hyperscalers really scrambling to find as much power as they can, you know, and the potential maybe there's going to be a greater reliance on natural gas than maybe initially conceived. Is there an opportunity for, like, term deals with hyperscalers to help decarbonize you know, the gas streams that will be going into potential new capacity, and I'm wondering about whether that's something that you're, you know, seeing kind of in the market today, or is that a longer-term opportunity?

Yeah, this is Adam again. So, a couple of things there. From the molecule side of things, you know, we still see the transportation fuel market as the highest value offtake market, and we're going to continue pursuing that for our molecules. And, you know, We do see interest in the voluntary markets here in the U.S. We're really interested in the medium term about what can be developing in Europe, and we'll probably touch on that a little bit later as well. But from the electron side of things, we're starting to see some reports published out there about green premium or green baseload premium because solar and wind can be intermittent, and there could be some applications there on the renewable power side. where that could be an interesting offtake market that develops for us. We think that the ERIN potential for renewable electricity could be more attractive to us from a financial standpoint. It may not have the same term that you're probably referring to in longer-term baseload green power. And I think it's important that everybody realizes, again, that, you know, electricity generation from biogas is baseload, which is really attractive and increases that grid stability. And, you know, we think, you know, a lot of people in D.C. are excited about that as a potential answer to what to do with some of these waste emissions. But I think we're more – I think we're optimistic on that ERIN policy being a more attractive financial offtake market, but we are monitoring, you know, what can be done on a PPA perspective to give you maybe longer-term offtake for some of those other industrial users for that green power.

Great. Thanks for that. Maybe just a follow-up since you opened that door, just kind of thoughts on the, you know, articulating the thoughts on the Europe opportunity as well would be great. Thank you.

Yeah, and I'm sure we're going to talk about guidance and how we field out the full year. What's happening right now with the European export markets is towards the end of the month here in November. And if people think that the regulations are a little complicated here in the U.S., I encourage you to go look at what happens over in Europe between the Europe Commission and the various countries within Europe. But the export market for U.S.-produced RNG is going through some regulatory changes and pathway changes there. And towards the end of the month, you know, there is an ISCC certification pathway, which Europe is reevaluating for how the U.S. tracks their molecules and that sort of thing. So for the European offtake market, there's going to be a pause towards the end of this month. And then, you know, we're working on how to work with some of these European regulators to reopen up those RNG export markets. So we think it's going to be interesting. We think it's going to be, you know, a potentially attractive market. And not really so much from the, you know, the voluntary market there is obviously something. But it's really the compliance markets over there. where there are all sorts of new costs being put on various industries, whether it be the marine industry on landed ships and some other places as well. So, you know, we have to work through some of the regulatory and potentially trade issues regarding, you know, U.S. R&G exports into Europe, but it's something that we think will likely get sorted out. And maybe, you know, one of the one positives that came out of these biogas reg reforms could be the tracking system that the EPA is now going to be using. Maybe there's a path forward to start using that as a basis that, you know, we can start opening up some of those European pathways.

Thank you very much. Thank you. We'll move on to our next question. Our next question comes from a line of Ryan Fink of V-Rally. Your line is now open.

Yes, thanks for taking my questions. I guess just one more on the election. Do you think M&A could pick up under the new administration given the potential for less restrictive regulations and any color on M&A broadly that you're seeing would be helpful?

Hey, Ryan. John here. We're always looking at M&A transactions and we're seeking to maximize shareholder value and we continue to look at market opportunities as they arise. We think that the environment is really good for M&A and will get better. Clearly, we've seen a lot of good marks in the M&A area. I'm thinking about Enbridge last December. And over the course of this year, however, there's been a number of transactions that have been out in the market that really didn't reach fruition or close. But the marks that we have seen really support the private transaction value and gives us a lot of comfort that we're on the right track with our organic growth and our vertically integrated model. and the valuation that we're creating as a result of that. So, the industry is quite fragmented, as we all know, and we think there's a lot of room for consolidation in this industry. The one transaction recently closed of note, Apollo, on the downstream side, Apollo bought a small network of fueling stations in Texas for a pretty strong price. That gives us, again, comfort in where we are and where we're headed in terms of our business plan, business model. But the short answer is that we see gathering momentum in that market, and we see good signals that opportunities will continue.

That's helpful. Thank you. For my second one, it looks like Cummins started full production of the natural gas engine at its Jamestown plant in September, and UPS bought 250 of the NatGas powered trucks. Have those developments accelerated your customer discussions at all?

This is Adam again. We're really excited about the potential for the fuel station service segment. As a reminder, it's got two pieces there. One is it's really got a good strategic value for Opal Fuels, providing us offtake in that transportation fuel market. And quite frankly, we're really excited about just the prospects of natural gas or renewable natural gas and heavy-duty trucking. And You know, the 15-liter rollout is, you know, we think has the potential to be really impactful. You know, I would remind listeners if, you know, right now Cummins is selling more 15-liter natural gas engines in China than they are diesel. And, you know, the U.S. is sitting on, you know, the largest long-life, you know, reserve base of natural gas, and it probably stays cheap to oil versus as long as the eye can see. So there's all sorts of energy security benefits. It's disinflationary because it's cheaper than diesel. You still get 17% to 20% emission reductions. So we kind of feel like this is one where – and then I think we all understand what's happening on the electricity demand side of things. And there have been a lot of challenges for these zero emission, you know, heavy-duty trucks, whether it's on the battery side of things. You know, leaving aside that electricity demand and stress on our grids, just the performance and the battery weight and, you know, how do you get all that power to those sites. And, you know, we think hydrogen still looks like it's a little ways out. You know, difficulty producing those molecules, transporting those molecules around. And we think natural gas is sitting right here with proven technology, cost effective, you know, disinflationary, and, you know, Now, I also want to say that the 15-liter rollout never goes as fast as anybody wants, and this is not unique to this product model. You know, we saw the same thing happen when, you know, the 12-liter engine was introduced. And I'd say this time around, though, we've got a lot more engineering and marketing and experience with it, like, and coming to 100% of it this time, which last time, you know, was a 50-50 JV and probably didn't get all the attention and, you know, really – you know, whether it be on the aftermarket support and that sort of thing. So we think a 15 liter is really primed for what could be accelerated adoption. And at the same time, as I was mentioning, you know, we don't have all the product availability yet. You know, when we looked at the beginning of 2024, 81% of the heavy-duty market was covered by OEM product offerings. Right now we're at 29% of how many of the OEMs are offering the product. Now we're encouraged that Freightliner is going to begin taking orders on the product. I think I heard in the beginning of next year, the first quarter of 2025, and start delivering on that product. And that will take us back up to, I don't know, about 70%. But, you know, we see a lot of good growth potential. We're having all those conversations now. you know, with new fleets that are looking at it. And it really encouraged also where, you know, the price premium felt really high to us and others in the industry. And we're working with, you know, across the industry and equipment suppliers that, you know, we're going to have a product that'll really be economically attractive. And, you know, so yes to the answer on those questions where fleets are really digging in and, you know, feel like, you know, the trucking industry is thinking about this as a good answer to diesel, you know, and versus, you know, some of those other technologies. And, you know, there have been some roadblocks also on the regulatory side, which we think may ease up a little bit in terms of utilizing this technology and some other public policy support that could really accelerate it. So we're excited about the 15-liter engine. I think the fleets are excited about it. And, you know, we just got to get the product out there. And, you know, the nice thing for us is, you know, you had mentioned UPS there. We're still seeing the good growth without that 15-liter engine because, you know, the customers that we've worked with, and UPS being the largest one, and I would remind folks, we built our first station for UPS in 2014. And since then, we've built 50 more. And, you know, we service those stations on a 24-7 basis, high reliability, high uptime. And we really think that's the poster child of what a successful deployment looks like. And as these major fleets look to, you know, to roll those out, there aren't many people that have really done it successfully. And, you know, I would say an even shorter list, of folks that have done it, and it's really worked for those fleets. So we're excited about it. You know, we still have some, you know, work to do to get the product out there. We still have some work to do with our channel partners to make it, you know, as cost-effective and economic as possible. And, you know, we're excited to see how that, you know, sort of rolls through in 2025.

Really helpful detail. Thanks, guys.

Thank you. We'll move on to our next question. Our next question comes from the line of Craig Shearer of 2E Brothers. Your line is now open.

Good morning. Thanks for taking the question. I'd like to dig a little further into Ryan's 15-liter CMI engine question. Of course, with any new rollout, you know, the sales and deliveries are never as fast as one would hope, as you already opined. But, you know, if if there are orders for two, three, four years ramping up over time, the fuel probably needs to be teed up ahead of time. You know, they got to know that they can fill up these trucks before they buy all those engines. So I guess what I'm asking is, what are the prospects for notable front-loaded multi-year fueling agreements that could, you know, tee up your longer-term volumes and further downstream, you know, development?

So I would say it this way. You know, I think people are aware that the vast majority of what Opal does, because we're still in the early innings of adoption here, are on, you know, really private fleets, dedicated fleets, either at distribution centers or supermarkets or refuse companies, where, you know, you really – have those defined fueling locations and that sort of thing. And those customers typically do sign up for long-term fuel agreements. We think what you're talking about in terms of multi-location programs makes a lot of sense to us. And I think the first go-through, maybe it's a one-site location kind of thing where they're testing and getting comfortable with it. And those sort of broader thematic programs likely come after they go through that first wave. But, you know, we're still sort of in the early innings of that, but we are looking, you know, to find those kinds of fleets and programs.

Gotcha. And given your focus on the transportation market – Can you opine about, I guess if I'm not mistaken, late today, we were supposed to get an LCFS market update from CARB. And to the degree LCFS pricing, obviously RINS has been great the last year or two. But to the degree LCFS kind of, you know, gets its mojo back, could that have any implications on the weighting of your projects, you know, in the next couple of years?

We're still principally a landfill-oriented company, and the majority of our credits are going to be RIN-based. Landfills don't attract a significant amount of LCFS credits, but certainly as the price improves on LCFS credits, that can only help. On the downstream side of our business, we have substantial fueling. capacity in California and we utilize that for low carbon intensity dispensing with third party supply. That is where we get the substantial bulk of our LCFS and as an aside, 45Z coming up as well, credit revenue. So that you know, as the price improves, that's where we're likely to see that growth. In terms of our mix, we'll stay principally a landfill company. We have our Sonoma project. We're working on our projects out in California. And we always look at opportunities in the low CI space, and we'll continue to do that. But, you know, from an outlook perspective, we see the you know, the credit banks starting to perhaps roll off sometime during the course of next year, not completely, but start to turn back the other direction. And as that happens, we expect to see some strengthening in the price. Obviously, everybody expects the reduction of the carbon targets from the CARB to be positive. And we are included in that group. So we look forward to that announcement later today.

Yeah, I think from a price perspective, I think that meeting is going on today. They've ticked up a little bit this week. I think we're currently sitting around $74 per credit. And, you know, it will help us if those prices go up, as John had mentioned. And, you know, when we get into 2025 guidance, we'll talk about the sensitivities to LCFS pricing to our results. Thank you.

Thank you. One more for our next question. Our next question comes from the line of Paul Chang of Scotiabank. Your line is now open.

Hey, gentlemen. Good morning. Two questions if I could. I think for the first one is probably for Adam. One of your competitors have said They have seen a shift up in what they can get as a percentage of the ring in their service station, fueling station, compared to the RNG producer. Wondering if you have seen a similar development?

Yeah, I mean, for sure we've seen a tightening of the dispensing market. R&G supply is growing faster than dispensing capacity, and that's what drives up those shares. You know, it's also one of the reasons why we sort of put together our business model the way we did. by being vertically integrated and having the RNG production as well as the station dispensing capacity. You know, Opal, you know, is not as impacted by either paying out higher RIN shares or, you know, where those economics, you know, lie within the value chain. And so I would agree that – R&G marketing fees have been rising or dispensing fees, as maybe somebody else termed it. And that's where we sort of like the way the Opal business model is positioned. And we also like the fact that we have a little bit more control or impact over our destiny to continue to grow out that dispensing capacity for our R&G production.

Adam, just don't know whether you will be willing to share. I think historically that the speed between the upstream and the downstream is 80-20. Is it now 75-25 or any number that you can share and whether that you think that ratio will still have more room to go up or that you are already receiving pushback and sort of the limits?

Yeah, we're not going to get into those specific numbers. I would say this, though. As I had mentioned, that dispensing capacity is tightening, so the numbers are going up. And, you know, if you want to give those numbers to some of our JV partners, I encourage you to do so.

Okay. And the same question that you monetize some of the ITC for next year. What is remaining available for you to monetize for next year?

Yes. This is Scott, by the way. With respect to the ITC credits, so as you pointed out, we did sell our first ITC credits. We have three projects that were placed in service this year, and we'll be seeking to sell credits for those three projects. And The sale of ITC will be an ongoing program as we place more projects into service over the next few years. You know, the ITC is clearly a significant source of liquidity to help fuel our growth over the next several years.

Scott, can you help me out with how we calculate that ITC and then what is the remaining for the three projects for next year?

So we're not going to get into specific numbers, but the ITC credits are typically, you know, 30% to 40% of the CapEx cost for the projects. 30% is the base, and 40% if you can meet, you know, one of the U.S. domestic content adder, and those would be the approximate percentages that we'd be using.

Okay. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Adam Bubbas of Goldman Sachs. Your line is now open.

Hi, good morning. Congrats on placing the Kirby project in construction. It looks like the same partner and partnership structure as the Cottonwood project. To what extent are there similar 100% equity projects teed up and as a follow-up, you know, how do the economics look on the 100% equity projects, little smaller plans compared to some of your larger projects that are structured as JVs?

Hey, Adam, John here. So, you know, you've got kind of a couple different questions mixed up in there. So, you know, we entered into a number of gas rights agreements with WM, and we're really pleased that the Kirby project represents the second project there, and yes, 100% ownership there. I think that as we build relationships across the industry, our partners have different goals and objectives within that. From a GFL perspective, our great partner GFL, we have a 50-50 relationship and we really like that relationship from the standpoint that it aligns the counterparties really well to perform on those projects. Certainly the 100% ownership such as the waste management or other municipal counterparties like we have New River Solid Waste Authority and we have the Prince William County and we have the Polk County down in Florida and the Atlantic County and Burlington County in New Jersey which are 50-50 joint ventures with SJI. So we have a mix of those and we look to build on those relationships to get further gas rights and we'll see different opportunities across the board. One aspect of what you're seeing is that people are reaching down to smaller-sized projects. Obviously, as we've discussed before, there are significant economies of scale in this industry, and as you go up in size to 4,000, 5,000, 6,000 SCFM projects, the size of, say, our Sapphire or Prince William projects, or 10,000 even, the size of the Emerald project, you've got really great economics. You know, it's challenging to make those economies of scale work for small projects. We are pleased that we were able to do that with the Kirby project and others that we're seeing in that 2,000 to 3,000 SCFM size range.

Scott, that's helpful. I appreciate the color there. And then really strong EBITDA margins in fuel stations in the quarter. I think margins were up 400 basis points sequentially. You know, what drove the acceleration in margins, and what's the right way to think about the run rate margin profile of this business?

Yeah, so this is Adam here. You know, we're sort of pleased that it came across the board in fuel station services, you know, improving margins in our construction business where we build fuel stations. And, you know, I don't think we had it in the release, but it will be in the queue where we also had increasing backlog on the construction business as well. And also strong margins on the service side of the business. You know, I'd say the lion's share of that margin increase was the higher throughput of RNG through our dispensing capacity. And, you know, that was likely, you know, some of the margin share gain as well. But from second quarter to third quarter, I think it was a blend across those three areas in the fuel station service segment. Okay.

And then last one from me, just any commentary around how the 2025 forward D3 RIN market is developing, you know, any update on how those offtake conversations are coming post-election?

Yeah, well, post-election in the last couple of days, we haven't seen a lot of activity. I would say, somebody should tell you, maybe they're down a dime or something. You know, we started to see some trading activity, I'd say, within the last month. And we did sell some of our 2025 RINs around the $3 level. And, you know, I wouldn't say there's heavy volumes yet, but they are starting to transact for 2025.

I see the prices really converging around the $3 mark and as we get closer to the end of the year and move into 2025, we expect, you know, those prices to strengthen around the $3 mark.

Thanks so much.

Thank you. I'm showing no further questions at this time. I'll turn it back to Adam Kamara for closing remarks.

All right. Well, we do appreciate everybody's interest in Opal Fuels and hope everybody has a great rest of the day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.