INTERVIEW: OPAL Fuels Co-CEO discusses growing RNG pipeline

OPAL Fuels intends to build up its RNG portfolio as it continues to find a favorable end market in long-haul transportation, while also making progress offering it as a baseload resource to utilities, said the company’s Co-CEO Adam Comora in an interview with NPM.

The White Plains, NY-based company merged three separate branches handling landfill gas to electricity, RNG development and downstream marketing and distribution into OPAL Fuels, which went public toward the end of 2021 with Comora and Jonathan Maurer leading as co-CEOs.

The main focus of OPAL is capturing and converting biomethane emissions into low carbon intensity energy for both the electricity and transportation sectors.

At the end of last year, OPAL reported 25 owned and operating projects split between 17 renewable biomass power projects with a combined capacity of 112.5 MW per hour as well as eight RNG projects.

OPAL’s pitch for the transportation sector is simple: replacing fuels like diesel with RNG significantly cuts down on the scope 1 and 2 emissions corporate are now required to report, which Comora says has led transportation-heavy companies like UPS to become OPAL’s largest customers.

But OPAL’s pitch to the electric sector could becoming increasingly salient, as well, as utilities and regional power grids continue to bring on GWs of intermittent solar and wind capacity. RNG is a non-intermittent baseload power that generators across the board are valuating highly as a grid stabilizer. Comora says utilities in particular are being increasingly interested in OPAL’s renewable power production capabilities and anticipates further growth in that area as baseload power continues to be prized.

Despite the potential drivers for renewable energy, however, the company is currently doubling down on its production of RNG over bespoke renewable energy generation projects. Comora notes the company has eight RNG projects in development with seven under construction. Conversely, the company only has a single renewable biomass power project under construction, the 2.4 MW Fall River project expected to reach COD by the end of the year.

Additionally, OPAL says it is considering the conversion of eight renewable biomass power projects to RNG facilities with negotiations ongoing “with several landfill and renewable power counterparties that would enable the conversion,” according to its 2023 annual earnings report. These conversion candidates account for roughly 50 MW of the company’s renewable power pipeline including its Sycamroe, Miramar Energy, San Diego – Miramar, C&C, Old Dominion, and Prince William I and II projects.

On the RNG side, OPAL is anticipating the completion of multiple projects this year starting with an RNG production facility at the Prince William County landfill in Manassas Virginia for counterparty Washington Gas and Light Company (WGLC). The agreement with WGLC obligates OPAL to develop, plan and permit a gas pipeline extension and associated interconnection facilities to deliver RNG from the facility to an interconnection point on WGL’s pipeline.

WGL will acquire the main project, and the contract also notes it will purchase the pipeline for an additional USD 25m, contingent on state regulatory approval. So far, OPAL has recorded a USD 1.8m capital expenditure on the project, which is slated for completion in 1Q24.

Other RNG projects under construction include three other projects fully owned by OPAL including the Hilltop, Vander Schaaf and Polk County projects which, when combined with the Prince William project, account for a combined design capacity of roughly 3.3m MMBTus (million British thermal units). Of these three projects, only the Polk County project has an announced COD slated for 4Q24.

Two other RNG projects, Sapphire and Atlantic, are 50 percent owned by OPAL and are also expected to be completed by the end of the year. OPAL notes it records its ownership interests in these projects as equity method investments in its consolidated financial statements.

In its annual report, OPAL notes it leverages relationships throughout the industry supply chain to identify and execute on new project opportunities, which “typically stem” from these existing relationships with landfill owners and dairy developers including new projects and referrals from existing partners. The filing also notes OPAL is “actively seeking to extend the term of our contracts at project sites.”

Comora adds that the company’s pipeline is able to stretch fairly broadly across the U.S. utilizing landfills, livestock waste and wastewater. He says the company is also looking at food waste as a potential growth area. On the transportation sector side, he says growth is a bit more focused on states with incentive programs like California, Oregon, Washington, and New Mexico.

Capital and Financing

In the back half of 2023, OPAL closed a new senior secured facility with Apterra Infrastructure and Bank of America which gave it USD 300m of availability off that bat, while raising an additional USD 400,000 through the sale of common equity.

The credit facility covers all of the RNG and renewable biomass power facility under construction, with additional liquidity to help with other projects in OPAL’s pipeline, said Comora, adding that additional construction projects will be announced this year.

Despite OPAL heavy focus on the development of RNG projects, the company notes it is facing “significant upward pricing pressure” in the market with respect to securing biogas rights necessary for conversion projects as well as converting its existing renewable power projects to RNG projects. In its annual report, OPAL notes that as competition for biogas conversion project sites has increased, “it has become increasingly common for prospective biogas project site owners and developers to ask for or require larger royalties or similar payments” for biogas rights. Additionally, OPAL says these biogas owners are increasingly requiring equity participation in prospective projects.

OPAL notes these pricing pressures extend to its attempts to renew biogas rights on existing biogas conversion projects and the end of their contractual periods as well as in situations where the company is planning to convert existing renewable power projects to RNG projects. OPAL notes these pricing pressures could lead the company to not pursue certain conversion projects or contract renewals.

Comora says generating investment interest in the space has been a challenge as the power sector in particular continues to be driven by more traditional renewables like solar and wind and, increasingly, battery storage.

“It has been a challenging financing market for a lot of folks in this space that haven’t yet proven out their revenue models,” Comora said. “There seems to be a bit of dislocation between what is happening with the public stock markets and where we are still seeing valuations. I have some opinions about that that is, but I will leave that for the sellside analysts and investors to lay out why the sentiment seems to be a bit of a drag on OPAL and some of our other peers.”

“The great thing about our business model is, once we build these facilities, they require minimal capex,” Comora said. “We can get basically 90 percent free cashflow conversion from our EBITDA and don’t have to continue to spend capex for production, so we look at that financing and any other capital raises we may do in the future as really just construction financing.”

Separately, Comora is optimistic about OPAL’s ability to utilize federal tax credits through the IRA, as well. Although he admits there was initially some “confusing guidance” from the feds “where the definitions didn’t quite make sense to us or the industry,” a correction issued in February indicated biogas and RNG would be eligible to capture investment tax credits (ITCs).

IRA guidance

The U.S. Department of Treasury and IRS issued a release on November 17, 2023, that specified certain types of RNG equipment as ineligible. The agencies issued a correction on February 16, 2024, clarifying that such equipment may be eligible. However, Comora says the proposed regulations in the correction still contain provisions that “creates uncertainty” with regards to the ownership, installation and modification of equipment and property on which ITCs can be claimed.

“There are still some technical corrections about how they dealt with common ownership, which we’ve submitted comments on alongside some others in our industry, but it’s pretty clear the intent is to support the development of these projects,” Comora said. “We are cautiously optimistic that will get fixed in the final ruling. It is a critical piece for us.”

Comora is also interested in unlocking PTCs for RNG projects, though he says the same uncertainties from the ITC guidance still applies, with the additional uncertainty of how the Treasury Department will score the carbon intensity of various fuels. But whether dealing with ITCs or PTCs, Comora said the ability to sell and monetize these credits through the IRA’s tax transferability provision is what will be most useful for OPAL’s purposes.

“Critically, through the IRA, both of these tax credits will be sellable and monetized,” Comora said. “We do expect once we’re generating these tax credits that OPAL will be able to sell them and turn them into additional investment capital.”

*This story was originally published exclusively for NPM subscribers last month.

NPM US (New Project Media) is a leading data, intelligence and events company dedicated to providing origination led coverage of the renewable energy market for the development, finance, advisory & corporate community.