Opal Fuels Inc
NASDAQ:OPAL
Earnings Call Analysis
Q4-2023 Analysis
Opal Fuels Inc
OPAL Fuels has achieved a record-breaking quarter, driven by improved fuel station service performance and environmental credit sales. The company's adjusted EBITDA for Q4 2023 soared to $32 million—a 57% leap from the previous year—and reached $52 million for the full year. With projects like the Emerald RNG joint venture advancing, OPAL saw production levels align with expectations. Looking ahead, there is palpable excitement for 2024, with RNG production forecast to grow by 60-80% and an adjusted EBITDA projection of $90 million to $100 million, significantly up from 2023. These promising developments are bolstered by the prospect of including biogas conditioning and cleaning equipment in tax credit eligibility, potentially boosting net income by about $40 million in 2024.
OPAL Fuels has expanded its operational scope to 8 RNG projects with an annual design capacity of 5.2 million MMBtu, a significant increase from the 2.3 million MMBtu at the end of 2021. The company also reported a 23% year-over-year growth in RNG production, reaching 2.7 million MMBTUs for the full year of 2023. Construction has continued full steam ahead, with six projects underway expected to contribute an additional 4.4 million MMBtu of capacity. Among these is the Prince William project, nearing operation commencement, and Sapphire, planned to begin operations in Q3 2024. Notably, at least 2.0 million MMBtu of RNG projects are slated to kick off construction within the year.
Fourth-quarter revenues spiked to $87 million, a $20 million increase from the same period in the previous year, primarily due to strategic environmental credit sales and new project additions like Emerald. Net income showed a remarkable rise to $20.1 million in Q4, recovering from just $0.3 million in Q3. The increase showcases the company's ability to profitably leverage market opportunities and efficiently ramp up new projects. Further supporting growth is OPAL's $500 million senior secured credit facility, which strengthens their liquidity position. For 2024, OPAL Fuels expects an adjusted EBITDA of $90 million to $100 million, not factoring in potential income from tax credit resolutions, RNG monetization, or start-up costs. Capital expenditures for the year are projected to total about $230 million, evidence of the company's commitment to expanding capacity and enhancing its operational footprint.
OPAL's fuel station service segment is set for significant growth in adjusted EBITDA of 75% to 90% over 2023. This is attributed to increased RNG marketing revenues through OPAL's dispensing network, new fueling stations coming online, and sustained margin improvements. The company's controlling shareholder, Fortistar, recently exchanged shares resulting in reduced voting control, potentially positioning OPAL for inclusion in stock market indices, signifying a strategic shift to increase shareholder value and market presence.
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And welcome to the OPAL Fuels Fourth Quarter 2023 Earnings Call and Webcast.[Operator Instructions]I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations to begin. Please go ahead.
Thank you, and good morning, everyone. Welcome to OPAL Fuels Fourth Quarter and Full Year 2023 Earnings Conference Call. With me today are Co-CEOs, Adam Comora and Scott Contino Chief Financial Officer. OPAL Fuels released financial and operating results for the fourth quarter and full year 2023 this afternoon, and those results are available on the Investor Relations section of our website at opalfuels.com. -- 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 and clean 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. So all factors that can cause attribute to such differences are described on Slide 2 and 3 of our presentation. These forward-looking statements reflect our views as of the date of this call, and OPAL Fuel does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, the call will contain a discussion of certain non-GAAP measures. A definition of non-GAAP measures used in the reconciliation of these measures to the mere GAAP measures included in the appendix of the release and presentation. Adam will give you today's call by providing an overview of the quarter's results and recent highlights and update on our strategic and operational priorities. Jon will then give our commercial and business development update, after which Scott will review financial results. We will then open the call for questions. And now I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuel.
Thank you, Todd. Good morning, everyone, and thank you for participating in OPAL Fuel's Fourth Quarter and Full Year 2023 Earnings Call. OPAL Fuel continues to execute on its business plan and is well positioned to grow in our industry, which is experiencing strong market fundamentals and expanding tailwinds. I'd like to highlight several points from this quarter's results and recent developments. First, as expected, fourth quarter results benefited from stronger RIN prices. Adjusted EBITDA for the quarter was $32 million, an increase of 57% from 2022 and the strongest quarter in OPAL history and $52 million for the full year 2023 meeting our most recent guidance. The positive results in the fourth quarter were driven by continued improvement in our fuel station service segment and the monetization of all environmental credits held for sale, including a portion from the third quarter. Second, Emerald, our 50-50 joint venture project with GFL and one of the largest RNG projects in North America is showing production growth in line with expectations. We began generating and selling in from the project in December. Third, we continue to make good progress on our projects that are in construction, expecting to end the year with 8.8 million MMBtus of RNG design capacity in operation. At the end of 2023, we began construction of a new 2.4 megawatt renewable electricity facility at the Fall River landfill that will utilize approximately 0.2 million annual MMBtu of biomethane equipment. Fourth, we are encouraged by recent treasury commentary on the ITC, which although not finalized, we believe that the ITC will include biogas conditioning and cleaning equipment as eligible for saleable tax credits in the final rules. It should be noted the support for this inclusion came not only from industry through comment letters but also from a letter offered by IRI bill sponsor Senator Brown, which is cosigned by numerous senators and members of the house stating clearly the intent of including this property in the Section 48 ITC provisions.We expect final rules to be published sometime after March 25, which will hopefully clean up a couple of remaining technical structural issues. Although not included in our adjusted EBITDA guidance for 2024, we have outlined our current thinking of how successful resolution of these rules would impact cash flows and resulting net income, approximately $40 million in 2024. I'd also like to add that our downstream fuel station service segment is set to have strong adjusted EBITDA growth in 2024, and we are encouraged by the increasing interest from major fleets testing the new common 15-liter natural gas engines, which should lead to continue this upward trajectory over the next several years. Jon and Scott will go into greater detail regarding our outlook for 2024. But needless to say, we're very excited about our opportunities. RNG production is expected to grow between 60% to 80%. Adjusted EBITDA is forecasted to range from $90 million to $100 million, up from $52 million in 2023. And we see continued growth in 2025 and beyond from annualizing the plants coming online this year, continued growth in fuel station services and our significant opportunity set of new potential projects to push into construction. 2024 also has the potential to be a powerful year in education and advocacy, which can broaden bipartisan support for our industry, capturing and converting biomethane emissions into low-carbon intensity usable energy product as numerous societal and strategic benefits for all Americans, including fighting climate change, improving air quality and socioeconomically challenged communities, supporting the agricultural sector, driving investment and providing economic value for countless municipalities that own landfills and wastewater treatment facilities, while also providing greater energy security for all Americans. With that, I'll turn it over to Jon. Jon?
 Thank you, Adam, and good morning, everyone. We're proud of our accomplishments in the fourth quarter of 2023 and the 2023 year-end results. Importantly, the Emerald RNG project is online, and we now have 8 RNG projects in operation with an annual design capacity of 5.2 million MMBtu, up from 2.3 million MMBtu at year-end 2021. Production was in line with expectations. RNG production was 2.7 million MMBTUs for the 12 months ended December 31, 2023, which is a 23% increase year-over-year. That number is expected to increase significantly this year. Scott will give more detail on this year's guidance, but we're expecting roughly 4.6 million MMBtu of RNG production this year. In addition to our operating projects, we currently have 6 RNG projects in construction, representing an additional 4.4 million MMBtu of annual design capacity and 1 2.4-megawatt landfill gas to electric project, which is 0.2 million annual MMBtu biomethane equivalent. Construction of new projects is proceeding well. Prince William, one which we own it 100% and represents 1.7 million MMBtu of design capacity has reached mechanical completion. Commissioning of the plant will continue over the coming weeks as we approach commencement of operations. Sapphire, which we operate in the 50-50 joint venture with GFL and representing 0.8 million MMBtu OPAL share of design capacity is on track to begin operations in the third quarter of 2024.Our Polk County, Florida project, where we also own 100% and which represents $1.1 million MMBtu of annual design capacity is also on track to begin operations in the fourth quarter of this year. 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 mid-2025. Atlantic will contribute $0.3 million MMBtu annual design capacity net to OPAL. As I mentioned, we also began construction of our Fall River 2.4 megawatt renewable electricity project in the fourth quarter of 2023, which will utilize approximately 0.2 million MMBtu of biomethane equivalent and is slated to begin operations by year-end. Our 2 Central Valley dairy projects are delayed due to a contract dispute. We expect this dispute, which is proceeding to an arbitration process to impact the timing of these 2 projects, and we plan to give further updates on timing as we move forward this year. Together, our operating and construction RNG projects represent almost 9.6 million MMBtu of design capacity. We expect to place at least 2.0 million MMBtu of RNG projects into construction this year. As OPAL executes on existing opportunities, growth in our relationships across the landfill sector is resulting in additional project opportunities that we believe will mature into continued growth in construction and operating projects in the foreseeable future.Last quarter, we started providing additional detail on how we measure the production output at our RNG and renewable power projects. We added 2 new metrics: inlet design capacity utilization measures of percentage quantity of biogas available at the inlet of our facilities compared with the design capacity of these facilities for the relevant period. We said we generally expect our RNG facilities to begin somewhere in the 70% to 80% range of inlets design capacity utilization and expect increasing utilization rates as all of our RNG facilities are on open and growing landfills. And we, along with our landfill partners continue to make improvements in gas collection at the well fields. Utilization of inlet gas, the second new metric measures the productivity of converting the biogas coming into the RNG facility into product R&G. It's simply the volume of the actual production for a given period, divided by the volume of inlet gas. This metric should be relatively stable between 80% to 90%, with fluctuations based on the efficiency and availability of the system and the quality of the biogas both inlet design capacity utilization and the utilization in the gas were within their expected ranges, and we expect that to continue this year. With that, I'll turn it over to Scott to discuss the quarter's financial performance and provide additional detail regarding guidance. Scott?
Thank you, Jon, 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 and year ending December 31, 2023. Our 10-K will be filed tomorrow. Looking at the fourth quarter results compared to the third quarter of 2023, RNG production increased to $0.8 million MMBTUs from $0.7 million in BTUs. The increase is largely due to Emerald production coming online. Compared to fourth quarter 2022, production grew 0.2 million MMBTUs due to a combination of same-store sales growth and Emerald coming online. RNG production was 2.7 million MMBtus for the 12 months ended December 31, 2023, compared to 2.2 million MMBTUs for the comparable period last year. Revenue in the fourth quarter was $87 million as compared to $67 million in the fourth quarter of 2022. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG fuel and fuel station services, where we dispense all of the RNG for our projects as well as 100% for our joint venture projects and other third-party RNG supplies.Net income for the fourth quarter was $20.1 million as compared to $0.3 million in the third quarter. The difference was primarily driven by the increase in revenues from the timing of environmental credit sales, but also recognition of Emerald coming online in equity method investments. Adjusted EBITDA was $32 million in the fourth quarter, as mentioned, partially driven by the timing of environmental credit sales as well as improving margins in our fuel station services segment. 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 increased to $46.9 million for the fourth quarter as compared to $37.3 million in the third quarter. The increase in revenues was primarily the result of increased RNG marketing fees, concurrent RIN and LCFS sales and improved margins. Adjusted EBITDA for this segment grew to $12 million in the fourth quarter versus $6.4 million in the third quarter. Renewable Power revenues decreased to $11.3 million for the quarter from $13.7 million in the third quarter. This was primarily due to reduced operations at Alberhill as the biogas was diverted to the new Emerald RNG project. Last September, we entered into a $500 million senior secured credit facility. The credit agreement provides up to $450 million of term loans over an 18-month draw period and $50 million of revolving credit. As of December 31, 2023, approximately $187 million was drawn down on the facility. As of December 31, 2023, liquidity was $348 million, consisting of $300 million of availability under the credit facility and $48 million of cash, cash equivalents and short-term investments. As a result, we feel our liquidity and capital resources and access to other sources of capital are sufficient for our growth plans.Now I'll turn to this year's guidance. For full year 2024 guidance, assuming $3 D3 RIN $2 per MMBtu brown gas and $65 per metric ton LCFS. We expect our full year 2024 adjusted EBITDA to be $90 million to $100 million and RNG production to be 4.4 million to 4.8 million MMBtus. Our adjusted EBITDA guidance does not include several items of note: one, the potential of $40 million of cash proceeds and income in 2024 that would result from favorable ITC resolution; two, RNG pending monetization increase of approximately $15 million and three, project development and startup costs of approximately $12 million, which do not get capitalized. As we disclosed last quarter, we are no longer recognizing RNG pending monetization in our calculation of adjusted EBITDA, although we continue to provide detail on our inventory and credit sold each quarter as well as a period ending balance. A reminder that this represents the value of our December 2024 RNG production where the costs have been recognized in our 2024 adjusted EBITDA results, but we have not yet sold and transferred the RINs or LCFS credits associated with that RNG. Effectively, having our 2024 results include revenues associated with December 2023 production while recorting our December 2024 production costs. This impact can be significant as a company has a large growth trajectory such as OPAL and obviously would not be as impactful if we weren't growing our production so significantly.One other item worth noting is that we are now breaking out our development and plant start-up costs as a separate line item on the income statement. We thought this disclosure is important to give investors a sense of steady state from our operating facilities. For 2024, development and plant start-up costs include a $12 million operating expense not added back to adjusted EBITDA from a virtual pipeline for Prince William that will be used until the permanent pipeline is operational. We also want to provide some color on the fuel station services segment, where we anticipate adjusted EBITDA to grow by 75% to 90% compared to 2023, results driven primarily by increasing RNG marketing revenues through our dispensing network, new OPAL fueling stations coming online and continued improving trends in margins. We expect full year 2024 capital expenditures at wholly owned and joint venture projects to total approximately $230 million, which includes approximately $41 million relating to equity method investments and approximately $28 million associated with downstream stations. Before I turn it back to Jon, I would just like to mention our press release earlier this week announcing that our controlling shareholder, Fortistar, has exchanged 71.5 million shares of high vote stock, the Class B shares that are entitled to a single vote. As our press units noted, with Forestar reducing a significant portion of its voting control, we anticipate that our publicly traded Class A common stock will become eligible for inclusion in certain stock market indices. Of course, there are no assurances that OPAL will be included in any indices. With that, I'll turn it back to Jon for concluding remarks.
Thank you, Scott. In closing, we are pleased with the continuing success in the execution of our business plan. We remain committed to furthering OPAL's vertically integrated mission 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 display fossil fuel and mitigate climate change. And with that, I'll turn the call back over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.
[Operator Instructions]One moment will be compiled a Q&A after. Our first question comes from Jon Ennis with Stifel.
For my first one, how should we think about the timing of RIN sales this year with current D3 prices more favorable to start this year? Should we think about it being more equally weighted than last year?
Yes. This is Adam here and thanks for the question. We are anticipating to be selling and transferring our RINs pretty uniformly as they're generated and vented throughout the year. And I would also add that, thus far, we've hedged or sold forward approximately half of our production.
Makes sense. For my follow-up, the EBITDA guidance for the fuel station service imply strong growth this year. Could you offer some additional color on the drivers of this growth? And maybe related to that, what's the latest feedback you're hearing coming on[Indiscernible?
Yes. Thanks again. This is still Adam. As Scott was mentioning in the earlier prepared comments, we're excited about the fuel station service segment. And 2024 is set up to be a really strong growth year for it. The primary drivers this year are really utilizing the dispensing network that we've set up and really generating a lot more profitability at that segment as we're delivering more RNG fuel through that dispensing network. And it's not only from our production. It's 100% from the JV projects and then also numerous third-party suppliers. And then we're also benefiting from a number of OPAL Fuel own fueling stations coming online and annualizing those that came online sort of mid-year last year. And then we're also seeing the continued improving trends in the construction and service side of that business. So 2024 really looks to be a good year for it. And the results this year are not being driven by what we are hearing is good feedback on that 15-liter engine. That 15-liter engine is still going through its testing period, but the feedback has been really strong, and that will show up as new business development activity this year and drive growth in '25 and beyond.
One moment for our next question. Our next question comes from Matthew Blair with TPH.
 I had a question on the CapEx. So I think at one point, it might have been a few years ago, you were guiding to CapEx that came out to, call it, roughly $40 per MMBtu for a landfill project, maybe about $150 per MMBtu for a dairy project. Could you give us a sense of where those numbers are today.
This is Scott Contino,thank you, Matthew, for your question. I think we're going to have to get back to you on the dollars per MMBtu for CapEx.
Okay. Is it safe to say that there is -- there has been some ization in just the unit cost?
 Yes. This is Adam more here. And I was just trying to do the math on the last 2 projects that we are looking at putting into construction here. There's no doubt that there have been some cost inflation over the last several years. We have seen that level out quite a bit over the last 3 to 4 months or so as we're putting together some project cost estimations. I see Jon working to calculate there. We'll come back to you on what ballpark rule of thumb is -- but one of the things that we've also been doing here internally is looking at ways to perhaps do things a little bit differently from a construction standpoint and seeing where there are some opportunities to reduce some of those initial -- reduce some of those CapEx for MMBTU. So it is up from the $40. I don't want to give you an exact number right now. We have seen that level out, and we still see extraordinarily good return on capital projects and still see very good paybacks on these projects. And I know there's going to be a question coming up on ITC. But certainly, that also helps as we're looking at projects that we put into construction here.
Matthew onward, but the costs that you're citing of $140 million, $160 is significantly higher than what we're experiencing for landfill projects. While that may be more appropriate for dairy where the cost might be similar, but the output of dairy projects being substantially lower than landfill projects. Obviously, our focus is on landfill projects, and we're seeing costs that are well below $100 per MMBtu.
Sounds good. And then regarding the RNG production guide of 44% to 48%. I think that implies growth of 1.7% to Q1 and 2024. It looks like at least part of this 2024 growth is actually coming from higher utilization at your existing plants rather than just streaming on with the new projects that you cited. Is that what you're seeing as well? And if so, what would be driving the higher utilization?
Yes. Thanks for that question. And it goes to how we were thinking about our guidance for the whole year. So there may be some follow-ups there. But when we've got our production guidance in the midpoint there 4.6%, about $3.6 billion of that is from projects that are operating today. So if you look at that 3.6% over the 5.2 design capacity, you're looking at about 70% product output on the design capacity. And I think as we've noted in our disclosures, we do expect same-store sales growth at our projects as they're at open and growing landfills. We're always looking at ways to continue to improve gas collection with our landfill partners. So we do expect these facilities to continue to grow as they mature. So when you look at our guidance this year, about $1 million of it comes from Prince William, Sapphire and Polk, the bulk of it really from Prince William, which we're happy as it is mechanical completion and has entered the commissioning phase.
One moment for our next question. Our next question comes from Ryan Pfingst with B. Riley.
 Adam, you mentioned you hedged or sold forward about half of your production. Can you share what the associated enviromental attribute and gas prices are there?
So we have not yet sold forward the nat gas piece, which we are looking at. And on the environmental piece of it, we feel you can look at the induce averages or something like that to try and get a feel for it.
Okay. And that leads into my follow-up. Could you just provide us with a refresher on how we should think about OPAL's average realized sales price compared to what we might see in the next prices? Is there a general rule of thumb for how much of the RIN price you're able to realize?
Yes. I think we've got some disclosure in there in terms of what typical brokerage or commission fees are for OPAL. And so I believe we've got that in our disclosure. And we don't necessarily sell at the index price. We do pick pricing and transact on pricing. So we don't have index-based pricing, but you can assume that our average sales price is just over where we may have given our guidance for the year.
And this is Jon. In terms of RIN price realization, it's important to keep in mind our vertically integrated business model where we capture really 100% of the output, both as a portion on the upstream side and the portion that would go to the fueling station on the downstream side of the business. So we really capture the full value chain in there. Animals addressing, obviously, the -- what we might pay out in brokerage. Some of our trades are done directly without brokerage deductions, others are done through a third party.
Got it. That's helpful to contextualize that piece. And then it looks like the event development pipeline wasn't included in the deck or the release this quarter. Is there any reason for excluding that here?
 Yes. This is Jon. So thanks for that question, Ryan. The concept was somewhat associated with our go public phase when we were a smaller company and the conversion of our pipeline of projects was more meaningful. We're now 5.2 million of nameplate and looking to exit 2024 with $8.8 million after the current RNG projects that are scheduled to be completed this year are, in fact, completed. So the pipeline of projects is now less meaningful. We've also shown that our excellence in bringing projects online and that our ramp-up period and high availability operating factors really attract us to other partners and that the development of those partnerships really adds more of an opportunity set -- that combined with our vertical integration really gives us a front-row seat in a lot of the opportunities that are out there in the marketplace. So we do see that we're guiding to greater than 2.0 million of MMBTUs into construction. We believe that the tailwinds that we're seeing in the industry will assist us in achieving those goals. But really nothing has changed. The cadence that we've been doing over the last couple of years will continue with the guidance that we're giving here today.
Yes. The only thing I would add to that is that it does -- the delineation between prospective opportunities in ADP, it really doesn't capture the full opportunity set of stuff that we're looking at. And if we've got prospective opportunities that are much greater than what we're doing, what we would call , we just didn't feel like it was a meaningful metric and thought that delineation was a little unique to OPAL fuels on how we were describing that.
One moment for our next question. Our next question comes from Martin Malloy with Jonson Rice & Company.
I would love to ask about Slide 17, and you mentioned also, I think, using biomethane for power generation in your prepared remarks. Could you maybe spend some time talking about that market of economics of that market and how OPAL might play a role. And I realize early history of a company that power generation was fairly important to OPAL
Yes. This is Adam here. Thank you very much for the question. And I think Slide 17 is important, and it's really important in how we're really trying to communicate who OPAL Fuels does and why there are these policy tailwinds behind our company and what we do. And look, we recognize that there is a little bit of a holistic view of energy transition at this point. But what we do here at OPAL Fuels is we're taking harmful biomethane emissions and turning them into a low-carbon intensity energy product. And when you really think about there -- it's starting to become a much more broader issues for all Americans and really think that there is a lot of potential here for bipartisan support for our industry, and we're starting to see it show up in a lot of different places. And whether or not we're going to talk about Erin and other types of things that can support cellulosic electricity, we think that this industry is starting to get behind this good, better, best strategy, where we have countless thousands of landfills, thousands of small farms, thousands of wastewater treatment facilities that are owned by municipalities where we're just not capturing Biomethane there's -- I think there's a lot of room to have this good, better, best, where the first thing you should be doing is capturing this biomethane. And not every biomethane source is going to be big enough or have access to a pipeline. And there is this proven technology to turn it into renewable electricity, which is baseload, not dependent on some intermittent either sun or wind and which is really good where you won't need battery storage. We think psychologic electricity makes a lot of sense and is the right public policy. So Erin the one that already are existing in the EPA regulations and there's a really great legal argument that was put forward by Arnold & Park and Porter on a partnership with the electric pathway website that I would encourage folks to read. And we think that ERIN or one potential for it. Perhaps it can show up in 45Z where renewable electricity potentially could qualify for those credits. We just think it's the right public policy to support the capture of biomethane and renewable electricity is certainly one product that could come from it.
Very helpful. And for my second question, I wanted to ask about Slide 20 and on transportation, fuel RNG demand. Could you maybe talk about how you see that market developing? And could we ever see OPAL looking to selling into that market under longer-term contracts?
Sure, Jon Maurer here. So we see substantial demand outside of the transportation fuel sector. Right now, the transportation fuel sector is the highest value offtake. But certainly, when you think about gas pipeline utilities for one, having many of them promised their public utility commissions and regulatory commissions to put decarbonized gas into their pipelines. We see this with like Enbridge, for example. We see that with NextEra. We see that with SRI they're all trying to find decarbonized gas to put into their pipeline and expand that capability. In addition -- so that's going to be a very substantial amount of demand over the next couple of years. Currently, the price is substantially below the transportation fuel market. Beyond that, there's certainly industry looking to decarbonize in the U.S. and then overseas markets. We see European carbon markets as being potentially very attractive for this. We've been participating in a small way into those European markets, and we see those European markets growing as a potential end use offtake. In addition, there's maritime uses. There's probably a bunch more that I haven't talked about, but when you add all those up, there's substantial demand for the low-carbon product, and I think we'll see more of that coming in the coming years. Maybe, Adam, you'd like to elaborate on that somewhat.
Yes. I just wanted to jump back into the policy tailwinds because I just want to maybe elaborate on why these are tailwinds. And we had one other thing on that slide talking about 70% of Americans wanting to do something about climate change. And when you break that down by a party or age group, that's where we're really talking about these tailwinds where if there's over 90% of Democrats and 74% of independent and maybe somewhere in of Republican that I believe we should be doing something. And there were some really interesting testimony from Republican senators asking for inclusion of RNG projects in that Section 48. It really gets more interesting when you're looking at the age demographics. Every time you move down 10 or 15 years, the percentages keep moving up higher and higher. So those are the tailwinds that we're talking about. And it's not only whether or not it's sayelastic electricity policies. It's also coming from the SEC now talking about green half gas disclosure requirements. And our product is 0-scope1 and 0oscope2 emissions versus diesel. These are the kinds of sort of trends that are really supportive and we think that taloseelectricity is part of it. And those voluntary markets continue to grow as well. And obviously, something that we're always keeping our eye on.Â
One moment our next question -- our next question comes from Paul Cheng with Scotia Bank.
The first question is that just curious, the arbitration that in the 2 California projects dispute, what's the nature of those disputes? And what's the risk that in your other projects, you will face similar issue or potentially basis? That's the first question.
Hey Paul, it's Jon Maurer. Thank you for your question this morning. Just kind of discussing it and somewhat here, the situation we have is where we have a fixed price EPC contract for both the Hilltop and the Bandera projects. The contractor has presented us with a series of change orders seeking to increase the price. We think the change orders are not warranted and substantially dispute the change orders that have been presented to us. We commenced as you said, an arbitration proceeding, while the arbitration proceeding is continuing and the dispute is being resolved the contractors required to continue work during the course of this resolution period. The contract itself for both projects for each of the 2 projects is fully funded by licensed sureties who are on notice of our plan. We believe that our plans have a substantial merit. But of course, it's in an early stage, and we can't really predict the outcome. But I can say this, it is limited to these 2 projects. It is not affecting other projects, and we don't see that it would affect future projects, Paul.
Jon, is this the first time you work with this contractor or that you have worked with them before? And also whether this contractor has any other projects other than those 2 that they are working on with you?
The contractor -- this is the first time we're working on it with them. Our -- the contractor was developed and sourced by our co-developer in the project and is a reputable counterparty and has some other projects in the industry, but just not with us. And we think it's really very narrowly focused on these 2 projects and not more broader than that.
And maybe this is for both Adam and John, just curious, not just OPAL, but the industry has been having a tough year over the past 12, 15 months and OPAL like very an expensive and very attractive. When you talk to our investors, where do you see the disconnection, -- what people do not understand about your business? Which part?
Yes. So it's interesting that you say that the industry has had a tough year. I suppose that you mean as exhibited by the stock price because we see gathering tailwinds in the industry, as Adam was alluding to before. And we're particularly well poised to really benefit from those tailwinds, and we see a lot of optimism as we look forward. But in terms of the stock price of us and our competitors, I can address ours right off the bat that it's strictly a matter of a low-flow stock and trying to address matters for improving that flow will really take care of that. Before I get to the float section, I will say that we think that the cadence of increasing projects into construction, increasing projects into operation and increasing the overall output will have a significant benefit to us just from a cash flow, but from really expanding company size. So that -- that is our -- what we're going to do is keep our head down, execute on the plan in front of us. But from a flow perspective, you saw last year that we started the at-the-money equity program that we disclosed and then most recently this week with the disclosure of the voting change that we disclosed where we expect that, that voting change will -- is aimed at having us picked up by some low cash-- small-cap stock index providers. So that would hopefully add some attraction to our stock. But I really think that at the end of the day, it's really executing on what's in front of us and the growth that, that will bring about that will result in stronger stock price. One last point on that. Obviously, we've seen some present transactions going on in the market, and those private transactions give us a lot of optimism about the value of our company relative to the stock price. The value of our company when you market to a transaction such as the Enbridge Morrow transaction at $1.2 billion, where they had a similar amount of gas in operation, but no real development pipeline and no downstream dispensing really gives us a lot of comfort as to the overall value that we're sitting on today and that we're creating in the very near future.
[Operator Instruction] One moment for our next question. Our next question comes from Adam Bubes with Goldman Sachs.
It looks like in fuel station services margin stepped up by over 800 basis points sequentially. Is that seasonality? Or what's going on under the bed that drives that strong performance sequentially. And as we think about the moving pieces, where are gross margins for dispensing third-party construction and O&M tracking, respectively.
The fourth quarter did benefit from some additional in monetization and LCFS credit sales. As we had mentioned, fourth quarter in general benefited from it. And certainly, a portion of that flows through on fuel station services. That being said, we see gross margins improving quite a bit in '24 versus '23, both from utilizing our more RNG flowing through our dispensing network and seeing improving margins both in the construction and the service piece as well. In '23, we still have a little bit of a lag effect in fuel station services from inflation rolling through some of our construction revenues on that side, and we've moved through that piece of it. I think that was all your questions did I missed any of your questions there, Adam?
That's helpful. And then separately, the U.S. Treasury and IRS still need to finalize 45Z. So how and when do you see regulations playing out? And then at the same time, 45 feet comes online, I believe the alternative fuel excise tax credit would be rolling off. What's the magnitude of tailwind that you receive from the alternative fuel tax credit? Or does that flow mostly to your partners?
Yes. No, Adam, I appreciate that because that was also one other thing I wanted to hit upon. I just wanted to remind everybody in our fuel station service segment, we have 0 nat gas commodity price risk. That flows all the way through as the variable cost to our fleet customers. So we do not have any impact from a relationship between nat gas and oil and those sorts of things. So all the margin improvement that we're talking about is from that increasing RNG moving through our network and those other items that I mentioned. Also on the AFTC side, we have negligible impact from AFTC, where that was also a pass-through benefit to our fleet customers. So it's under $1 million in terms of how much AFTC profitability we have received. In terms of timing on the 45Z I do not want to set any time lines out of treasury because each time we do they seem to be a little bit later or that sort of thing. We've been waiting for how they're going to do the carbon intensity scoring on 45Z. I'm hopeful we're going to see it pretty soon. That's one of the biggest pieces to see how they're going to score landfill and dairy. And certainly, we do benefit more so from dairy and even some of the gas we're going to be dispensing on the dairy side, but we don't know yet how they're going to treat the really negative ultra low CI stuff. And we don't know yet on the landfill side, a, how they're going to bucket that feedstock and whether they're not going to -- they're going to allow for individual improvements to those CI stores, we're hopeful we're going to see it pretty soon -- and as I had mentioned earlier, too, there could be a potential where cellulosic or renewable electricity could be seen as a transportation fuel in that 45Z. We think the way we read it, it certainly could. And it will be interesting to see how we -- what kind of CI stores could get associated with that.
And then maybe if I could just get one more in here. Can you expand on the potential for greater than 2 million MMBtu going into construction this year? Just any color on specific project details in cadence would be great.
Well, we've discussed a lot about our relationships -- you're obviously aware of our relationships with GFL with WM with SRI and a couple of the projects that we've been discussing associated with those. While we're not prepared to talk about specific additional projects. We do believe that there's been a little bit of, let's say, a backlog and that as that backlog gets relieved, you'll see additional projects coming into construction. We've discussed a little bit about what some of those projects might look like. But principally, looking at growth in the landfill area and that that's our principal focus, and we've talked about some of those counterparties that we're growing. And so we do have a great deal of confidence that those improving relationships combined with really our delivering consistently projects work right out of the box and operate with high degrees of availability and we'll really -- and our downstream vertically integrated model of delivering into the highest value offtake market will continue to increase our opportunity set there.
Yes. The only thing I would say there, Adam, is these projects are big. They can be sizable or chunky and sometimes they can come in bunches. So if you do see a quarter where we're successful putting multiple projects into construction and maybe get 2 or whatever it is in a single quarter doesn't mean that we're also on an $8 million MMBtu into construction run rate. So I just want to -- I just want to caution that as well, if we see one of these quarters coming up, where they get bunch.
That concludes the question-and-answer session. At this time, I would like to turn the call back to Adam Comora for closing remarks.
All right. Well, thank you very much for your participation and interest in OPAL Fuels. We look forward to continued engagement in dialogue, and hope everybody has a great day.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.