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Update on Renewable Energy Tax Credit Regulations and Notices

Tax emails

By Danielle Nieh, SVP - Head of Tax Liability, Hannah Tucker - AVP, Underwriting Leader and Courtney Johnson - AVP, Underwriting Leader

Recently, several significant updates have been released regarding renewable energy tax credits, including Investment Tax Credits. These updates introduce clarity regarding several aspects of qualifying for and claiming such tax credits. The updates paired with an increase in tax credit utilization via traditional tax equity transactions and tax credit transfers has led to an overall increase in demand for tax liability insurance.

Below, we provide a concise overview of the key updates:

  • The final prevailing wage and apprenticeship regulations were published on June 25, 2024, streamlining the qualification criteria for claiming an increased credit for certain renewable energy projects. The final regulations clarify that the prevailing wage rates will be determined by the Department of Labor, address concerns regarding cure payments and provide additional details on the apprenticeship requirements. By defining the scope of qualifying activities more precisely, the regulations offer developers and investors a clearer path to execute their projects in compliance with federal guidelines.

  • Another critical update was the release of the final transferability regulations on April 25, 2024, which govern the transfer of renewable energy tax credits between entities. The final regulations largely follow the proposed regulations but include further detail about how to make the payment and election for transferred credits and how excess credit transfer penalties apply when multiple transferees are involved or when only a portion of the credits are transferred. The updated framework enhances transparency and reduces administrative burdens, facilitating smoother transactions in the marketplace.

  • The IRS released Notice 2024-30 on March 22, 2024, which provides further guidance on the energy community bonus adder. Most notably, Notice 2024-30 added several counties to the list of Metropolitan Statistical Areas (“MSAs”) and non-MSAs meeting the fossil fuel employment threshold and unemployment rate requirement, which is one common way renewable energy projects may qualify for the energy community bonus adder. Additionally, in May 2024 the IRS released Notice 2024-41 on the domestic content bonus adder, modifying Notice 2023-38 and expanding the safe harbor classifications for certain renewable energy projects. Both notices provided welcome clarity. 

  • These updates reflect ongoing efforts to optimize the renewable energy tax credits framework, making it more responsive to the evolving needs of industries and investors alike. By providing clarity, flexibility, and additional incentives, these regulations aim to spur investment in critical sectors. 

Expansion of renewable energy tax credit coverage

There has been a noticeable uptick in requests for tax liability insurance that offer comprehensive coverage across all facets of claiming and qualifying for renewable energy tax credits. These fulsome policies are designed to mitigate risks associated with the structure of the tax equity transaction, qualification for the applicable credit rate, recapture, and transferability of the credits. Each policy is meticulously crafted to cater to the specific nuances of individual projects and the parties involved, such as developers, tax equity investors, and credit transferees.

In addition to the more fulsome coverage, another notable trend is the rise in hybrid coverage requests. Hybrid policies provide coverage for not only specific tax positions but also coverage for the representations and warranties within tax credit transfer agreements or tax equity transaction documents. This hybrid approach offers robust protection, encompassing risks beyond the scope of standalone tax policies. These policies may include coverage for environmental factors, energy regulatory compliance, and title risks, thereby providing a more holistic shield against potential liabilities.

Due to our team’s dual expertise in representations and warranties insurance as well as tax liability insurance, our underwriting process is streamlined and efficient. This specialized knowledge allows us to tailor policies that meet the unique needs of each project and stakeholder involved. By offering comprehensive coverage and adept handling of complex underwriting scenarios, we ensure that all parties can navigate the intricacies of claiming and transferring tax credits with confidence and peace of mind.

What’s next?

As the tax regulatory landscape continues to evolve, these tailored insurance solutions will continue to play a vital role in allowing developers and investors to mitigate risk and maximize the benefits of renewable energy tax credits in a rapidly changing economic environment.
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