Federal tax credits are an important source of capital for renewable energy projects, including solar, wind, energy storage, geothermal, and other technologies. Developers and project sponsors can monetize the tax credits to help finance projects.
Tax credit insurance allows parties to transfer certain tax risks to an insurer, helping to provide the certainty necessary to attract investment from a tax equity investor and/or the purchase of tax credits by a tax credit buyer. For private equity firms and other investors with exposure to renewable energy projects, understanding how this coverage works can also support investment decisions and help protect expected returns.
Historically, renewable energy developers that did not have the tax appetite to use tax credits themselves partnered with large financial institutions through tax equity structures. The tax equity investor contributed capital to the project and received tax credits, among other financial returns.
The Inflation Reduction Act expanded the market by allowing renewable energy developers and project sponsors to sell many eligible tax credits directly to unrelated third-parties. That gave developers another way to turn credits into capital without replacing the traditional tax equity model. Developers can now partner with investors who provide capital in exchange for tax benefits, sell eligible credits directly to buyers, or use a combination of both approaches.
Regardless of the structure, all parties face the risk that the transaction may not deliver the expected tax benefit. That risk is what makes tax credit insurance an important part of many transactions. By identifying the specific ways a credit could be reduced, buyers, sellers, and investors can determine which exposures they want an insurer to take on.
Tax credit insurance is highly customizable. The exact coverage can vary based upon the project, transaction, and risks the parties want to address.
A policy may protect against the risk that the IRS reduces or disallows a tax credit because the project missed certain eligibility requirements, such as construction deadlines, labor standards, bonus-credit criteria, or Foreign Entity of Concern (FEOC) rules.
Other potential risks include whether a project:
Tax credit insurance can also address more technical transaction risks. For example, in a tax equity partnership, parties may seek protection against the IRS challenging the structure of the partnership or its tax allocations. In a direct credit sale, coverage may address whether the parties properly transferred the credit.
Tax credit insurance is not a one-size-fits-all policy. Some buyers may seek broad coverage across most of a transaction’s tax risks, while others may choose to insure only a specific issue.
Renewable energy developers and tax credit sellers usually agree to indemnify buyers if the IRS later reduces a credit. This can create a major financial obligation because the seller may have to repay a large sum years after the transaction closes. For smaller developers in particular, an unexpected payment like this can strain cash flow and weaken the company’s balance sheet.
Larger developers usually have enough financial strength to support those commitments themselves. However, these larger developers may want to shift these risks off their balance sheet and into the tax insurance markets. Smaller developers may not be deemed to have the financial strength to support their indemnities, particularly when a buyer wants assurance that the seller could cover a major tax loss years after the transaction closes.
Tax credit insurance can strengthen that position by shifting covered risks to an insurer. That can make the credit more attractive to buyers and reduce the amount of risk the sponsor/developer retains.
It can also make it easier for sponsors/developers to sell their tax credits to buyers. Developers can then use that money to help finance construction or fund future development.
Under federal tax rules, buyers may ultimately bear responsibility if they purchase a credit that the IRS later determines should not be respected.
For buyers who are new to renewable energy tax credits, that exposure can create a significant challenge. Private equity firms and other investors with stakes in renewable energy developers or projects also must contend with the possibility of a potential loss of tax credits either directly or via an indemnity/guaranty that is being provided to the buyer. Tax risk can directly affect the economics of an investment. Identifying which risks that can transfer to an insurer may help investors protect expected returns and make more informed decisions about a transaction.
That protection can make a tax credit transaction more appealing, and it is important to have a firm understanding of the type of underwriting diligence the tax insurance markets typically expect.
Before offering coverage, insurers need to understand the facts and circumstances of the transaction. If the coverage depends on whether a particular tax position is legally valid, insurers will typically expect a law firm or accounting firm to provide a tax memo or tax opinion.
Other risks may require different support. For instance:
The stronger the supporting analysis, the easier it is for insurers to understand the risk and provide the best possible terms, conditions, and pricing.
Renewable energy development creates significant investment opportunities. The U.S. Energy Information Administration reports that developers plan to add a record 86 gigawatts of new utility-scale generating capacity in 2026, with solar, battery storage, and wind accounting for most of those additions.
With the right protections in place, buyers, sellers, and investors can better manage tax risk while continuing to pursue renewable energy opportunities. Stakeholders can put themselves in a stronger position by addressing potential concerns early. An experienced tax insurance broker can help the parties involved position their projects to obtain the best possible terms, conditions, and pricing and to allow for a smooth underwriting and policy negotiation process.
Corey Lewis is the Global Head of Tax Insurance at Brown & Brown based in New York, NY, and was previously a member of the North America Transaction Solutions Operating Committee, Co-Leader of the North American Tax Insurance Practice, and Tax Credit Insurance Practice Leader at a large, global insurance broker. Corey was recognized as a Power Broker and Rising Star in 2019, 2020, 2022, 2025, and 2026 and as a Power Broker Finalist and Rising Star in 2023 by RISK & INSURANCE Magazine. He graduated from the University of Michigan with a B.A. and the University of Texas School of Law with a J.D.