Marsh is set to bolster investments in clean energy in the United States with the introduction of a novel tax insurance solution. The leading insurance broker recently unveiled its Tax Investment Default Insurance, aimed at amplifying the available capital for ventures tied to federal tax credits in US renewable energy initiatives.
The initiative stems from the Inflation Reduction Act of 2022, which ushered in fresh tax incentives aimed at fostering the development of renewable energy projects in the nation. As per the provisions of this legislation, developers now possess the ability to transfer forthcoming tax credits to investors sans the requirement of an equity stake in the project.
This transfer of tax credits enables developers to garner funds to bolster the nascent stages of project development. Meanwhile, buyers—typically financial institutions—stand to gain access to future credits to offset their federal taxes.
Traditionally, project lenders have mandated prospective tax credit or tax equity investors to meet stringent financial criteria, often necessitating investment-grade ratings. While this approach has facilitated developers’ access to top-tier capital, it has inadvertently sidelined a broader pool of investors lacking the requisite credit standings mandated by lenders.
In response to this challenge, Marsh has introduced the Tax Investment Default Insurance to shield developers against the risk of default should a tax credit investor fail to fulfill their financial obligations post the generation of tax credits. This insurance coverage serves to instill confidence in lenders, thereby allowing for the acceptance of tax investors who would have previously been excluded due to credit rating constraints.
Backed by several A-rated underwriters, including Everest Insurance® underwriting companies, Marsh’s new policy marked a significant milestone with the issuance of the first Tax Investment Default policy for a prominent solar developer in March.
The unveiling of Marsh’s Tax Investment Default Insurance coincides with a notable uptick in Marsh clients procuring tax insurance policies. These policies aim to safeguard their investments in renewable energy tax credits against the potential risks of disallowance or reduction by tax authorities.
David Kinzel, Senior Vice President of Structured Credit & Political Risk at Marsh, emphasized the pivotal role of tax credit transferability in propelling the growth of the renewable energy market. He stated, “Marsh’s Tax Investment Default Insurance further supports this growth by enabling a wider pool of investors to capitalize more clean energy projects.”
