New York | May 14, 2024
First-of-its-kind policy protects project developers selling future tax credits
New York, May 14, 2024 – Marsh, the world’s leading insurance broker and risk advisor and a business of Marsh McLennan, today announced the availability of Tax Investment Default Insurance, a first-of-its-kind solution designed to expand the pool of capital available to invest in federal tax credits tied to US renewable energy projects.
As part of the Inflation Reduction Act of 2022 — which provided a host of new tax incentives to encourage renewable energy project development — developers can now transfer future tax credits to investors without the need to take an equity stake in the project. By transferring their tax credits, developers benefit by generating cash to fuel early-stage project development, while buyers, typically financial institutions, have future credits to offset their federal taxes.
Project lenders, however, have typically required prospective tax credit or tax equity investors to meet the strict financial strength criteria of investment grade. While these options have provided developers access to high-quality capital, they have left out a larger pool of investors that don't have the requisite credit ratings required by lenders.
Marsh's Tax Investment Default Insurance solution was created to protect developers against the risk of default should a tax credit investor become unable or unwilling to fulfil its financial obligation once the tax credits are generated. Such cover can provide comfort to lenders allowing them to accept tax investors, that formerly would have been excluded, with more confidence. Marsh’s new policy form is supported by several A-rated underwriters, including Everest Insurance® underwriting companies which bound the first Tax Investment Default policy for a leading solar developer in March.
The launch of Marsh’s Tax Investment Default Insurance solution coincides with a significant increase in the number of Marsh clients purchasing tax insurance policies to protect their renewable energy tax credit investments against the risk of the credits being disallowed or reduced by the tax authorities.
“The transferability of tax credits plays an essential role in the growth of the renewable energy market by offsetting the high upfront costs of constructing solar, wind, and other projects,” said David Kinzel, a Senior Vice President, Structured Credit & Political Risk, Marsh. “Marsh’s Tax Investment Default Insurance further supports this growth by enabling a wider pool of investors to capitalize more clean energy projects.”
