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Marsh has announced the launch of Tax Investment Default Insurance, a new solution designed to increase the capital available for investing in federal tax credits tied to US renewable energy projects.
Under the Inflation Reduction Act of 2022, which introduced new tax incentives to promote renewable energy project development, developers can now transfer future tax credits to investors without needing to take an equity stake in the project.
By transferring their tax credits, developers can generate cash to support early-stage project development, while buyers, typically financial institutions, obtain future credits to offset their federal taxes.
However, project lenders have typically required prospective tax credit or tax equity investors to meet strict financial strength criteria of investment grade. While this has given developers access to high-quality capital, it has excluded a larger pool of investors lacking the requisite credit ratings demanded by lenders.
Marsh’s Tax Investment Default Insurance was created to protect developers against the risk of default if a tax credit investor becomes unable or unwilling to fulfil their financial obligations once the tax credits are generated.
This coverage can reassure lenders, enabling them to accept tax investors who previously would have been excluded, with greater confidence. Marsh’s new policy 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 comes amid a significant rise 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 tax authorities.
David Kinzel, a Senior Vice President, Structured Credit & Political Risk, Marsh said, “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.”
“Marsh’s Tax Investment Default Insurance further supports this growth by enabling a wider pool of investors to capitalize more clean energy projects.”
