Marsh announces launch of new Tax Investment Default Insurance solution

Marsh, an international insurance broker and Marsh McLennan business, has launched its Tax Investment Default Insurance, created to enable more US clean energy investments

Described as a first-of-its-kind solution, the new product was designed to expand the pool of capital available to invest in federal tax credits tied to renewable energy projects in the country.

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.

However, prospective tax credit or tax equity investors are typically required by project lenders 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.

Taking this into account Marsh created its 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.

A cover like this, the broker stated, can provide comfort to lenders allowing them to accept with more confidence tax investors that formerly would have been excluded.

David Kinzel, a Senior Vice President, Structured Credit & Political Risk, Marsh: “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.”

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