OPAL Fuels Inc. (OPAL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the OPAL Fuels First Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Todd Firestone.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels First Quarter 2025 Earnings Conference Call. With me today are Co-CEOs Adam Comora, Jon Maurer, and Kazi Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the first quarter of 2025 yesterday afternoon, and those results are available on the Investor Relations section of our website, @opalfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind 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 are 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 recent highlights, and an update on our strategic and operational priorities. Jon will then give a commercial and business development update, after which Kazi will review financial results. We'll then open the call for questions. And now I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.

Thanks, Todd. Good morning, everyone, and thank you for participating in OPAL Fuel's First Quarter 2025 Earnings Call. First quarter results were in line with expectations. Performance across our business segments was solid, and we continue to execute on our strategic and operational objectives. First quarter adjusted EBITDA was $20.1 million, over 30% higher compared to the same period last year. Our first quarter 2025 Fuel Station Services segment EBITDA was approximately $12.5 million, 80% higher than the first quarter of 2024. RNG fuel production for the quarter was 1.1 million MMBtus, up nearly 40% versus the same period last year and in line with our expectations. Our Fuel Station Services segment continues to exhibit strong growth. As we often discuss, the strategic value of our vertical integration, which maximizes the value of RNG that we produce and makes us an attractive partner for new RNG business development opportunities, this segment also provides steady, predictable and growing cash flow that improves economic returns to the overall business and dampens commodity price volatility. We are maintaining our full year guidance set out in March and expect to see sequential quarterly RNG production growth throughout the year as our newer projects continue to ramp. We also anticipate continuing growth at our existing landfill RNG facilities. While we are pleased with our execution, we are also cognizant of the uncertain macro and regulatory environments. Although we don't expect our business to be materially impacted by tariffs, recent trade policy uncertainties are causing delays in investment decisions in our customers and partners, including some of our logistics and trucking fleet customers. These delays are not material enough for us to change our guidance regarding fuel station services EBITDA growth for the year, but we are not yet seeing the acceleration of CNG and RNG adoption for heavy-duty trucking. That said, we are very encouraged by numerous factors supporting long-term adoption. Our view is driven by the product availability of the Cummins 15-liter engine, with Freightliner now moving into production and delivery. In addition, a new regulatory outlook has recognized the challenges of zero-emission vehicles for the heavy-duty market. This significantly expands the potential for adoption of RNG CNG-powered heavy-duty trucking. While this regulatory shift has positive implications for the continued growth of fuel station services, we are still waiting for regulatory clarity for the RNG fuel segment. We are continuing to monitor 45Z implementation, final EPA rulings on the proposed partial waiver introduced in November of last year, and the upcoming set rule, too, which will include volumes and other market balancing mechanisms. While we are waiting for the regulatory backdrop to clarify, there is still strong bipartisan support for American biofuels and investment in RNG. With that, I'll turn it over to Jon. Jon?

Thank you, Adam, and good morning, everyone. As Adam mentioned, our first quarter production results were 38% higher compared to the first quarter of 2024, driven primarily by increasing production at the facilities commissioned in the fourth quarter of 2024. As we mentioned in March on our last earnings call, production from these facilities is growing, and we continue to see positive performance across our other operating facilities. We maintain our 2025 RNG production guidance of 5.0 million MMBtu to 5.4 million MMBtu, which at the midpoint is a 37% increase versus 2024. In our in-construction portfolio, we have 4 landfill RNG projects in construction at Atlantic, Burlington, Cottonwood, and Kirby, which remain on schedule and represent in aggregate 2.1 million MMBtu of annual design capacity. We expect Atlantic to commence commercial operations in the third quarter of this year and the next 3 during 2026. Our development pipeline has numerous near-term opportunities with secured gas rights, and we are maintaining our guidance to place 2 million MMBtu into construction in 2025. In Fuel Station Services, we have 45 stations in construction, of which 19 are OPAL-owned. We are maintaining our guidance to grow Fuel Station Services 2025 adjusted EBITDA 30% to 50% versus 2024. 2025 is off to a good start. And despite the mentioned near-term uncertainties, longer-term market fundamentals are supportive of our business plan and growth potential. Successful disciplined execution will result in increasing shareholder value. I'll now turn the call over to Kazi to discuss the quarter's financial performance. Kazi?

Thank you, Jon, and good morning to everyone joining today's call. Last night, we issued our earnings press release outlining our results for the first quarter ended March 31, 2025. We expect to file our Form 10-Q on Monday. Revenue and adjusted EBITDA for the quarter were $85.4 million and $20.1 million, respectively, compared to $64.9 million and $15.2 million in the same period last year. Net income was $1.3 million, up from $0.7 million in Q1 2024. This year-over-year quarterly growth reflects the continued ramp-up of RNG production at facilities commissioned in 2024, along with the growth in our Fuel Station Services segment. Included in these results is OPAL's share of adjusted EBITDA from equity method investments, which was $3.4 million for the quarter versus $6.5 million in Q1 2024. The year-over-year decrease is primarily driven by the timing of last year's RIN sales and start-up-related expenses at new joint venture projects. Capital expenditures for the quarter totaled $17 million, including $5.4 million related to our equity method investments. As Adam mentioned, we maintain our full year 2025 guidance provided in March. We continue to expect adjusted EBITDA between $90 million and $110 million, supported by RNG production of 5.0 million to 5.4 million MMBtus. Our guidance assumes D3 RIN pricing of $2.60 per gallon for the entire 2025. As of March 31, our total liquidity was $240 million. This includes $40 million plus of cash, cash equivalents, and short-term investments, more than $178 million of undrawn availability under our term credit facility, and a little over $21 million of remaining capacity under our revolver. In March, we also monetized approximately $8 million in investment tax credit net proceeds and expect roughly $50 million in total ITC sales in 2025, which bolsters our operating cash flow. We believe our current liquidity position, combined with the operating cash flows, will be sufficient to fund our existing capital plan and near-term growth initiatives. With that, I'll now turn the call back over to Jon for closing remarks.

In closing, we are pleased with our first quarter results. We remain well-positioned for continued disciplined execution of our strategic growth objectives and the expansion of OPAL's vertically integrated platform. I'll turn the call over now to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

[Operator Instructions] And the first question will be coming from the line of Derrick Whitfield of Texas Capital.

For my first question, I wanted to lean in on your production trajectory for the year. While flattish, so Q1 flattish versus Q4, your guidance implies a material increase in production over the course of the year as recent projects ramp and gas collection improves. Could you perhaps speak to the cadence of production expectations for the year and then the improvement you're expecting in inlet design capacity utilization over the course of the year?

Hi, Derrick. Jon, I'll take this one. So, production for the quarter was within our band of expectations, and production was somewhat affected by a couple of factors, including an unusually cold winter affecting our landfill gas collection. In addition, we had some availability issues with our virtual pipeline projects, which are not generally as reliable as direct-connect projects. However, as you mentioned, we are expecting good sequential growth through the next several quarters, consistent with our guidance. And this will come from improvements at existing projects, including landfill gas collection expansions at our open and growing landfills that are occurring typically this time of year and through the summer. In addition, our Polk project is going to be transitioning to a direct connect interconnection this month, which should serve to increase that reliability. We've also put in place a number of key additions over the last 5 months or so in the operating team there, which should result in increasing efficiencies and availability across those projects. And as we see the Atlantic project on track for commercial operations in the third quarter, we should expect to see results from that in the fourth quarter. So as I said, we remain confident in our output, and we'll see that sequential ramp over the course of the year.

And maybe leaning in further, just on your in-construction RNG projects. It appears, as you noted, that these are generally progressing in line with your expectations. Are you guys experiencing any leading-edge inflation associated with tariffs?

Kazi, do you want to take that?

Sure. Let me take that. So, on the tariff-related, we are not seeing any cost increase in our construction projects or even in our operating areas yet. I don't expect there's going to be a lot because all the in-construction projects' equipment has been ordered, like fixed price contracts have been executed. So, we don't expect a lot of implications on our current operations as well as the capital. It could be in future projects, and we'll make those judgments as part of the FID when we make the final decision on the investments.

And maybe just any color around how material that could be on future projects, just from what you guys have been able to size up to date?

So just as a guide, some of the future projects you have already made qualifying investments for the ITC purposes. And so part of those costs has already been secured, didn't see a whole lot of improvement. You remember, all of our content, we try to make it domestically qualified. There could be implications on steel or aluminum, all those areas, but we don't see a major implication. It remains to be seen. We don't know how this whole overall macro situation is going to clarify itself over the next 3 to 6 months. But to date, we don't see a major implication.

The next question will come from the line of Matthew Blair of TPH.

I want to talk about the RIN pricing you achieved in the first quarter. It was down quarter-over-quarter, but still extremely strong relative to the benchmark index. I think we show you capturing about 112% of the benchmark index. Could you talk about the drivers here? And is this something that you might be able to replicate in Q2 and going forward?

Yes. Thanks, Matt. Adam Comora here. We did have an average realized RIN price of about $2.71 in the first quarter. We don't like to speculate on where RIN prices are going or where public policy is going to go. And we typically have a philosophy that we are going to sell as we go. We also don't like to talk too much about our trading philosophy and policy. I would say that our second-quarter RIN price will likely be lower than what it was in the first quarter. Our position for the year is basically about 50% that we have sold, and supported by our outlook for our guidance.

Then the growth that you're expecting this year in SSS, 30% to 50% EBITDA growth, coming off a pretty strong number in 2024. Is it possible for you to split? How much of that growth is simply coming from higher volumes? It sounds like you're building 19 of your own stations. Then, how much of that growth is coming from expectations of stronger margins due to an increasingly tight dispensing market?

Yes. So this is Adam again. There are obviously a few subsegments within fuel station services. And we're seeing good, strong performance across all of those. Some of that comes from OPAL fuel stations that we own and then charge the tolling or compression fee. We had a number of those facilities come online in '24 and a number coming online in '25. So, you annualize the ones that came on throughout the year last year and the new ones coming on this year. Our construction business continues to perform well in terms of anticipated margins. Our service business there continues to grow as well, as we have full-service contracts. Those could be on stations that we build and then service after the fact. There is a component to higher utilization and throughput of our dispensing network as RNG volumes continue to flow through there. So, it's really all 4 of those pieces that continue to drive growth in fuel station services.

The next question will come from the line of Martin Malloy of Johnson Rice & Company.

First question, just the bigger picture. Could you maybe talk about how you're thinking about returning capital to shareholders, potentially dividend policy, as you achieve the growth, at which time you'll start to generate some meaningful discretionary free cash flow?

Yes, Matt, this is Adam Comora here, and I appreciate that question because certainly, our largest shareholder and all of our shareholders are interested in maximizing shareholder value and returning value in any number of ways. This really goes to the flexibility that we have in terms of how we deploy capital and what we do with the free cash flow generation that's going to be coming to maximize and enhance shareholder value. We're sitting in a position where we have a very strong opportunity set of biogas projects that we can either deploy capital and accelerate growth, if they still achieve our required unlevered rates of return. That free cash flow generation can also be used in M&A opportunities to enhance the platform and be accretive to shareholder value or if those things don't materialize and you're no longer achieving rates of return that you want on new capital projects, you have the flexibility to deliver and return cash to shareholders through those mechanisms that you were talking about. I know we're trying to achieve a better float and liquidity, and we've taken some actions to do that with our shareholder base. Share buybacks in the future could always be something that you look at. Right now, we like the opportunity set that we have in front of us to continue to deploy capital and grow our company in these new types of projects. And by the way, it could either come in fuel station services, where we think there could be a real robust opportunity coming for CNG RNG in the heavy-duty trucking market, or some really attractive, large RNG projects to deploy capital there. And we're also cognizant of other ways to create shareholder value from the free cash flow.

For my second question, I wanted to ask about potential on the electric power side with respect to your facilities. Maybe if you could talk about what you're seeing there, from customer interest or potential projects.

Yes. This is Adam again. In the renewable power segment, we don't really talk a lot about. I think it's a really interesting use for smaller biogas or biogenic methane abatement, quite frankly. I think people understand the benefits of renewable power from biogas, where its baseload power enhances grid stability. It's typically in rural areas or municipality-owned. There are a number of different ways to accelerate or incentivize development in that area. And we think that's going to be coming. Now, we have talked historically about an e-RIN policy as being something that could be really effective to drive investment in that space and create incremental value for OPAL Fuels. If it's not the eRIN policy, we think that there could be other interesting off-take markets for that. I know a lot of data centers were looking for low-carbon-intensity baseload renewable electricity. We'll see if those types of off-take markets develop and provide that good economic return and that sort of thing. So, we don't have anything to report on that front just yet today. I think also, if you look at our financial statements, you'll see we're not making a lot of money on renewable electricity today. This is also something we try and educate the folks in D.C, there's not one size fits all. We always think there's this good, better, best policy on what to do with biogenic methane. We think the worst answer is to flare it locally. And we think a good answer is to turn it into renewable electricity for the reasons that we said. If you have a large enough emission source, your best answer is to turn it into RNG, where you're capturing the full energy there, because those landfill gas-to-electric projects aren't the most efficient. They do use higher heat rates to create your electricity. We think that resonates with folks. We just haven't seen yet where that shakes out in terms of how to best structure either policy around it or see that commercial offtake, but we do think it's going to be coming.

I'll just add that, as always, our electric project portfolio has represented the raw material for converting these long-term gas rights into RNG projects, and we expect to see that continuing over the course of this year and next.

The next question will come from the line of Adam Bubes of Goldman Sachs.

I was wondering if you could just update us on the latest thoughts around the potential time line outcomes with the next iteration of the next biogas policy.

Adam, this is Adam here. There's a lot going on. So when you talk about biogas policy, obviously, we have a lot of things happening within the EPA with the renewable fuel standard, and there's a lot of tax policy coming as well. So maybe I'll start on the tax policy first, and then we can move into the RFS. On the tax policy, it seems like from the news that I've been reading, we could be seeing some new tax bills coming out any day next week. It sounds like there could be some energy tax policy included in that. And if you'll recall, when we gave guidance for the year, we had a minimum to very small amounts of 45Z included in our guidance. I want to just talk from a super high level about what it is that we do again and why we think that there is Republican and bipartisan support for the capture of this biogenic methane from organic waste, which, by the way, will continue. We are going to continue to have biogenic methane coming from the organic waste that we create in the animals that we use for our food supply create. It is broadly supported that we should be doing something about that biogenic methane. As it pertains to the tax policy, the one that we're waiting for clarity on, that 45Z, we think we'll be seeing that pretty quickly. It's also pretty interesting, too, because when we talk about our vertical integration, it also gives us diversity to public policy outcomes as well because not only in the tax policy are people talking about 45Z, they're also talking about this RNG Incentive Act, which really would accrue to the downstream fuel station services, whether it's an RNG dispensing tax credit or something that comes back on the fuel usage side. So we think that we'll start to get a little bit of clarity around that probably in the coming weeks. We'll see where it shakes out on how the Grid model is going to work and whether or not it's at the nozzle tip for dispensing or whether it's on the production side for 45Z or maybe some combination of both. But it does feel like there is broad-based bipartisan support for some of that stuff to be included in the tax policy. On the RFS, I'm seeing reports, and I'm sure you guys are seeing reports as well, that the EPA is really trying to keep the timelines on when they put out rules and establish their rule-making cadence and time line. So we read the same things that everybody else reads, where we could see that coming in the coming weeks. As far as the RFS goes, there has been a considerable amount of focus and attention on liquid biofuels. I can understand that. There were a lot of investments made in converting refiners to be able to create renewable diesel. I think the previous set rules weren't as supportive for a lot of the investments that were made in that area. You saw that sort of play through in various RIN pricing for various categories. I think there's been a lot of focus on that side of it. There hasn't been as much attention paid to the cellulosic category as we would like to see. The interesting thing there is that we actually want the same things as a lot of the liquid advanced biofuels in terms of strong volumes across advanced biofuels. If you have a holistic view on how you're managing the RFS, we think the cellulosic waiver credit can make a lot of sense so that the obligated parties can achieve their compliance. If you've got a functioning working RIN market across the spectrum of those advanced biofuels, then you can have that price cap that can really work and support new RNG investment. If you do the math on what it can look like in '26 and '27 or however long they do a set rule for, it's really supportive of new investment in RNG and that sort of thing. It's not to say it's always a straight line, and we don't know exactly how the rules are going to be. But we do feel like what we do does have that broad bipartisan support. We don't know where all these things necessarily shake out. What I can tell you is that it does feel like an investment in these RNG projects and the productive use of that biogenic methane is broadly supported, whether it be renewable natural gas in heavy industries like heavy-duty trucking, or potentially marine fuel, and capturing those smaller emission sources for renewable electricity. We'll see where there's potentially positive tax policy or potential positive outcomes out of the RFS. I do believe that we will start getting that regulatory clarity over the next, I don't know, a month or 2, and we'll see how long it takes to finalize any of those rules. I would say on the 45Z, which starts Jan 1, 2025, we obviously haven't created any of those tax credits or sold any, but that is something that would be active for the entire year. Long answer because there are many layers to that onion.

Then my last question, it looks like your RNG EBITDA per [indiscernible] is around $18 in the quarter. Just wondering if you can help us think about puts and takes around the trajectory of EBITDA per MMBtu from here. On one hand, it sounds like D3 RIN credit prices might step slightly lower sequentially. On the other hand, I would imagine as you ramp up projects, OpEx per MMBtu may move lower as you spread that OpEx over more production. So, just how are you thinking about the trajectory of EBITDA per MMBtu from here?

Kazi here. Let me answer that question. I think it's just simpler than it may sound. If you think about it, Jon has mentioned the secular growth in our RNG production throughout the year from the existing facilities, plus the ramp-up of projects we put in construction at the end of last year. So that production would be what the RIN price is going to look like. We already mentioned that we have done pretty well on the RIN price last quarter. It will be less for the second quarter and third quarter, and fourth quarter, depending on where the RIN prices are; we are assuming that the rest of the year is going to show up at 260. So it's simpler, sequentially growing, and moderated by how the RIN price is shaping up.

The next question will come from the line of Betty Zhang of Scotiabank.

For my first question, I was wondering if you could talk about the Renewable Power segment. In the first quarter, it looked like revenues were down quite a bit. As a result, results were down quite a bit as well. So, just curious what the drivers were there.

So, this is Jon. In the Renewable Power segment, last year, we had the ISCC pathway in that segment. And those contracts terminated. So there was a substantial decrease from those contracts being terminated in the fourth quarter. So that's principally where you're seeing the differences there. Otherwise, it's a pretty consistent performer. In the future, you might see decreases as projects move from renewable power into construction or operation as RNG projects. But otherwise, it should be fairly consistent. We're seeing good opportunities for contracting the power output of those projects as well as REC prices in certain markets. So other than that, Betty, I think that's the principal driver of the change.

Yes. This is Adam here. I just want to follow up on that. I think, as people might remember, we were enjoying an international export market through renewable power, and that lapsed in November of last year. So there will be a couple more quarters of that, which was already baked into our guidance and factored into our business plan for 2025. But it opened up, or it may be, think about a little broader conversation on tariffs, because we did get that first earlier question on tariffs, which don't have a material impact on the projects in construction. As Kazi had mentioned, we don't think we'll have too material an impact as we're evaluating some of the new project opportunities in front of us. But it made me think again about some of those indirect implications of tariffs. When we talk about RNG and we're talking about U.S. public policy and how the RFS potentially plays out and what's happening in our domestic tax policy here, an indirect effect of tariffs is that we don't have an export market currently for the RNG that we produce. We think that that's going to be a really interesting opportunity once all that stuff shakes out and those international markets open up again, whether it be for renewable power or other potential markets for RNG. Once those sorts of things shake out and you get European pathways back, we think that's an interesting opportunity for us.

In the first quarter, I also wanted to ask about what looked like a pretty substantial income tax benefit of around $8 million. So, just curious if there was anything to point out there?

Yes. Those are the sale of our ITC Section 48 tax credits. If folks remember, we don't include the cash proceeds from the sale of the Section 48 ITC tax credits, and it's not included in our EBITDA guidance, but it is included in net income and cash flow. So that's what that $8 million was, and that was where Kazi was referring earlier, somewhere anticipated to be about $50 million in 2025.

[Operator Instructions] Our next question will be coming from the line of Craig Shere of Tuohy Brothers.

Even a hazy at the moment, RNG margin outlook pending regulatory certainty, certainly looks a hell of a lot better these days than e-RIN's prospects. Depending on what we see in the coming weeks and months, is there room to accelerate the conversion of biofuel power projects to RNG?

Yes. I mean, that's what we're excited about. We have a number of projects that we've secured biogas rights on and a number of conversion projects. Quite frankly, a number of those are sizable projects. Wherever that public policy shakes out, it really defines what your opportunity set is. So if there is RIN price volatility, we still have a subset of larger projects that we can underwrite and make a lot of sense. At the same time, we're being disciplined and prudent. The way our business is structured is that these projects do require a significant amount of capital. They take a ballpark of 18, 24 months to develop and finish out construction on. So you typically spend the money early and upfront, and then you recognize significant free cash flow for a long period of time once the projects are operational. We also balance how quickly we move on our development based on whatever the externalities are, be it public policy, capital markets, or what have you. We've really got the ability to either accelerate development and grow faster or be prudent and manage the balance sheet effectively as well to make sure that you don't, as our Chairman likes to say, get over your skis. So we've got the ability to either lean in and accelerate development or stage it out as the projects come online and you deliver the free cash flow.

My second big picture question. Obviously, you're hearing from multiple parties that downstream continues to look strong. You obviously have a nice construction program going on there. But uptake on the 15-liter CMI engines seems to be slower than anticipated. And thinking into the end of the decade, macro Trump administration policies obviously support accelerated domestic liquids production and production from our allies as well as heavily stair-stepping LNG exports. So a really fearful worst-case scenario outlook might envision what are we going to do if there's $50 or lower crude and $4 or higher systemically Henry Hub gas. Are you hearing any concerns about that?

This is Adam again. I would say no, I think natural gas is going to stay cheaper than oil for as long as the eye can see, specifically here in North America. I want to remind everybody, when we got into the fuel station service segment, I don't know, 13 years ago or so, we always had the eye that ultimately, there was going to be the strategic value of vertically integrating with all of our biogas assets. At the same time, we were really excited about the prospect of compressed natural gas as a transportation fuel. We always thought that if you could take natural gas and turn it into an oil substitute, it was a good way to take advantage of an energy arb between those 2 things. And I think that's going to continue for, quite frankly, as long as the eye can see, given what it costs to produce crude versus what it costs to lift nat gas here in the U.S. As far as the uptake of the 15-liter engine, we're really encouraged by what we're seeing and people realizing that it is a good answer even if you're just using CNG, you're going to get 20% emission reductions versus diesel. Quite frankly, it's disinflationary when you look at the cost of the fuel versus oil. Now when we talk about the "slower uptake" or why aren't we there yet, it's been a confluence of factors of product availability where we didn't have a Freightliner engine, which is, I don't know, 40% or so of the market until really just now at the recent ACT Expo. You've also got this macro environment where trade looks like it's a little challenged right now. So we've seen really good adoption. And our base business is really around more recession-resistant businesses, refuse, moving food and beverages, and that sort of thing around the country. So when we talk about the slower uptake, it's really around those logistics and transportation fleet customers that didn't have a product until this 15-liter engine showed up. I would also say when we were getting into it, 13 or 14 years ago, everybody was doing it for the economics. People weren't really as focused on sustainability or emission profiles back then. And back then, you were talking about a 60,000 premium for the 12-liter tractor versus where it is today. Now I think this period of uncertainty is also sort of healthy. We think we're getting to a place where the economics are going to work on CNG versus RNG. Once we do that, we think we're also opening up a whole new area of growth where RNG today is about 2% of the diesel market. Even if we do a fantastic job capturing all the biogenic methane, RNG could maybe grow 7, 8, 9, 10x from where it is today. There's an opportunity for CNG once we get the price premium down a little more, which should happen with scale, and there are some structural things we also need to address there and make sure there's a residual market for tractors when people want to trade out of them. A lot of those for-hire fleets typically operate in a 1- to 3-year contract environment. That was the other thing from ACT Expo is we saw a lot of collaboration with the shippers that are hiring these for-hire fleets that really want to see them transition into it. They're starting to realize, hey, maybe we need to do 4- or 5-year contracts so that a 5-year payback for those tractors can really help accelerate adoption. So we see a lot of positives coming, and we see that policy shift away from trying to make that one zero emission work for every industry shifting, and people are going to lean in on it. So I'm not overly concerned about what may be a short-term oil price move that shrinks the economics a little bit. We think long term, there's going to be a very attractive economic incentive between CNG and diesel.

Do you really think that customers are willing to look at 4- to 5-year paybacks versus, say, as low as 1 to 2?

That's a really interesting question because I think if you talk to most C-suites out there, they would say a 4- to 5-year payback is pretty attractive on capital. I think if they get contracts that support that kind of time frame, and maybe they have better visibility on residual values, I think the answer would be yes. I think a lot of public companies are willing to trade CapEx for OpEx as well. So I think the answer is yes. We'd like to, and by the way, there are some customers, obviously, that can see shorter paybacks. Right now, what happens in the industry is that the RNG producers are making RNG more attractive and shrinking the payback by passing along some of the RIN value to those fleets. So yes and no. Some companies, yes, and provided they have contracts on the other side of it, yes. If a fleet owns its own tractor and keeps it for 10 years, then the answer is pretty easy for them. So we'll see how it all plays out. We're still trying to work, and hopefully, more competition will bring down that incremental price for that tractor. And I think there's also some coming DEF requirements that maybe cause that diesel tractor to go up in price, and that shrinks the premium. So we're getting there, though, on the economics of CNG on its own. Not quite there yet, but we're pretty close to getting there.

This concludes today's Q&A session. There are no more questions in the queue. And I would like to turn the call back over to Adam Comora for closing remarks. Please go ahead.

We thank everybody for your interest in OPAL Fuels, and I hope everybody enjoys the rest of the day.

Thank you for participating. You may all disconnect.