Opal Fuels LLC, with a growing portfolio of nationwide renewable natural gas (RNG) and landfill projects, is going public in a combination with an affiliate of energy infrastructure giant ArcLight Capital Partners LLC. 

The definitive agreement announced Thursday would launch Opal, a Fortistar portfolio company, on Nasdaq under the ticker “OPL.” Co-CEOs Adam Comora and Jonathan Maurer would continue to lead Opal, with backing from ArcLight Clean Transition Corp. II, a special purpose acquisition company.

“This transaction with ArcLight reflects a transformative step in our company’s development and strategy,” Comora said during a conference call with investors. “RNG-powered heavy duty fleets realize substantial savings today versus diesel, and the successful execution of our robust growth plans will expand the role of ultra low-carbon RNG across the transportation sector.”

CFO Ann Anthony said Opal’s RNG production volumes “are poised to grow,” moving from 13 million gasoline gallon equivalents (GGE) this year to 125 million GGE-plus in 2024.

“Further, an additional 25 million GGEs coming from third parties will also be dispensed,” Anthony said. “Complimenting this significant growth, our footprint of RNG fuel stations is set to expand” at a compound annual growth rate estimated at 28% “between now and 2024, bringing our current estimated year end 2021 footprint of 95 stations to 256 stations.”

‘Right Now Solution’ 

RNG “is a right now solution to the right now problem of climate change,” Comora said. The fuel uses “existing technologies proven at scale, it can be transported on existing pipeline infrastructure, and it can be stored effectively until its use, all of which lead to a cost competitive and reliable fuel source.”

The company’s network of fueling stations spans 42 states, which are typically backed by fueling agreements averaging 10 years in duration. Opal today operates 21 biomethane projects, according to Mauer. 

Three operating projects “currently produce RNG fuel for sale into the transportation fuels market and the balance are currently operating as renewable power plants,” he told investors. “Over the next several years, we expect to build 23 more RNG projects from opportunities that are substantially under our control. Many of these RNG projects will come from converting our renewable power projects to RNG, and some will come from dairy projects that are substantially under our control today.”

Seven projects are under construction, with another 16 in the “advanced development and execution phase,” he said. 

In one agreement clinched earlier this year with ArcLight affiliate NextEra Energy Inc., Opal plans to operate a gas capture facility at Republic Services Inc.’s Pine Bend landfill in Inver Grove Heights, MN. 

Once all of the projects in development are completed, “there are no significant incremental capital requirements to develop the resources,” Mauer said. “In addition to the projects that we have in construction or advanced development, there remains additional upside potential from opportunities we see in the marketplace that we are not including in our base case projections.”

There are “at least 18 additional projects” in early stages of development, along with some identified merger and acquisition targets, he told investors.

Is RNG At An Inflection Point?

Opal, which traces its roots to 1998, expects to generate $170 million in revenue this year.

“It is an incredibly exciting time at Opal Fuels,” Mauer said. “The market for RNG as a transportation fuel is at an inflection point, and we are excited to leverage our expertise in renewable power to be a leader in RNG projects, as we convert renewable power projects to renewable transportation fuel facilities.”

ArcLight Clean Transition CEO Jake Erhard said Opal’s “vertically integrated model differentiates it from other players in the industry, which together with the platform’s more than two decades of experience, gives us tremendous confidence in the company’s ability to execute its growth plans.”

The business combination values Opal at an implied $1.75 billion pro forma enterprise value at a price of $10.00/ArcLight share. The transaction and related financings are expected to provide gross proceeds of $536 million to Opal. 

Proceeds to Opal include ArcLight’s $311 million of cash held in trust, assuming no redemptions. It also includes a $125 million fully committed private investment in public equity, or PIPE, which is anchored by NextEra. Electron Capital Partners, Gunvor Group, Wellington Management and Adage Capital Management. There also is a preferred equity investment for up to $100 million from affiliates of NextEra.

The boards of both ArcLight Clean Transition and Opal have approved the merger, which is set to be completed, pending shareholder approval, before mid-2022.