Marsh has introduced tax investment default insurance, a solution designed to expand the pool of capital available to invest in federal tax credits tied to US renewable energy projects.
The initiative aims to protect developers from the risk of default if a tax credit investor fails to meet financial obligations. This protection reassures lenders, allowing them to accept tax investors that formerly would have been excluded.
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 solar developer in March.
The company reports that the solution aligns with a notable surge in Marsh clients acquiring tax insurance policies to safeguard their renewable energy tax credit investments from potential disallowance or reduction by tax authorities.
Under the Inflation Reduction Act of 2022, US developers can now transfer future tax credits to investors without needing an equity stake. This allows developers to generate cash for early-stage projects, while buyers get future tax credits.
However, project lenders typically require tax credit investors to meet strict financial strength criteria, excluding a larger pool of potential investors without the necessary credit ratings.
David Kinzel, senior vice president of structured credit and political risk at Marsh, says: “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 capitalise on more clean energy projects.”
