Marsh has introduced a new insurance product that aims to broaden the base of capital investment in US renewable energy projects by securing federal tax credits.
The initiative follows the Inflation Reduction Act of 2022, which introduced several tax incentives to spur renewable energy development. The legislation enabled developers to pass on future tax credits to investors without requiring them to hold an equity interest in the projects.
The transfer allows developers to obtain immediate funding for early project stages while enabling primarily financial institutions to use these future credits to offset taxes.
Traditionally, lenders have demanded that tax credit or tax equity investors possess a robust financial standing, typically at an investment-grade level. This criterion has facilitated developers’ access to premium capital sources but has simultaneously restricted the diversity of potential investors by excluding those lacking the necessary credit ratings.
To address this challenge, Marsh developed the Tax Investment Default Insurance to safeguard developers from the potential default of tax credit investors who fail to meet their financial commitments after the tax credits materialize.
The coverage reassures lenders, empowering them to broaden their acceptance of tax investors who were previously deemed unacceptable. The first policy under this new scheme was underwritten for a prominent solar developer by Everest Insurance and others.
The rollout of the new insurance product coincides with a marked rise in Marsh clients acquiring of tax insurance policies by Marsh clients, who aim to protect their investments in renewable energy tax credits from potential disqualifications or reductions by tax authorities.
David Kinzel (pictured), senior vice president for structured credit & political risk at Marsh, noted: “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 on more clean energy projects.”
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