Tax credit insurance for clean energy credits: coverage, cost, and how it works

Introduction

Since Reunion began facilitating tax credit transfers in 2023, about 40% of its transactions (as of February 2026) have included tax credit insurance. Clean energy tax credit insurance has played a significant role in the adoption of transferability, particularly in investment tax credit (ITC) transactions. This guide covers what the insurance protects, what it excludes, what it costs, who buys it, and how it fits alongside seller indemnities and due diligence.

What is tax credit insurance?

Tax credit insurance is designed to protect the value of tax credits in the event of an IRS challenge. In a sale of transferable tax credits under §6418, tax credit insurance covers the risk that a tax credit is disallowed or recaptured by the IRS. The coverage matters because buyers generally bear this risk, and sellers often do not have the balance sheet to stand behind their indemnities.

The product predates transferability. A pool of investment-grade insurance carriers has long insured qualification, recapture, and structure risks for tax equity financings, and the market has been used on tax equity transactions for over a decade.

Tax credit insurance is distinct from property and casualty insurance on the project, which allows a damaged asset to be placed back in service and so protects against recapture, but does not insure the tax position itself.

How does tax credit insurance work?

Sellers typically purchase the policy, with the buyer listed as an additional insured. Buyer and seller typically agree upfront on whether a policy will be procured, because the premium is meaningful and reduces the seller's net economics. Procurement of the policy is then a common closing condition in the tax credit transfer agreement (TCTA).

The policy and the seller's indemnity are layered, and the order varies by deal. In many transactions the indemnity is structured so that the policy pays first in the event of a loss and the seller makes the buyer whole for anything the policy does not cover. Some transfer agreements make this explicit by requiring the buyer to claim under the policy before seeking indemnification from the seller. Other deals use a double-trigger structure, in which the policy responds only if the seller fails to perform on its obligations around a recapture or disallowance event.

Some sellers procure insurance as a primary means of protecting their own or their parent's balance sheet by reducing contingent liabilities from the sale, and a seller that buys insurance may be unwilling to provide a parent guarantee. Some buyers still want a seller indemnity in place to prevent moral hazard, so that the seller has no incentive to take an action that could trigger recapture.

Losses covered under the policy include additional tax, penalties, interest, tax gross-up, and contest costs, up to the policy's limit of liability. The insurer typically does not have contractual privity to the TCTA.

A claim starts with an IRS challenge. If the IRS audits the buyer and determines the credits are excessive or invalid, the buyer typically appeals to the IRS Independent Office of Appeals. From that point the insurer has a say in how far the dispute goes: policies usually reserve the insurer's right to litigate before paying a claim, and a settlement reached with the tax authority without the insurer's consent is a standard exclusion.

Why credit buyers require tax credit insurance in §6418 transfers

The buyer, not the seller, is directly liable if the IRS determines that a transfer was excessive. An excessive credit transfer increases the buyer's tax by the excess amount plus a 20% penalty, unless the buyer can show reasonable cause. A purchaser of ITCs is also required to pay any recapture amounts, despite having no governance rights over the project.

The seller's indemnity is the first line of protection, but its value depends on the seller's creditworthiness and financial condition, including existing indemnification obligations. Where the seller or its guarantor is not sufficiently creditworthy, buyers may require a parent guarantee or tax credit insurance. Some buyers require insurance on every transaction; others ask for it only when the creditworthiness of the seller or guarantor is insufficient. Roughly 60% of Reunion's transactions have closed without insurance, which suggests cases where the seller could provide a sufficiently strong indemnification or the parties were comfortable with the risk-reward of the credits.

Pricing reflects the distinction. As of Q2 2026, ITCs from proven technologies that carry a creditworthy or investment-grade indemnity trade in the $0.93 to $0.94 range, while ITCs without a strong indemnity that carry tax credit insurance trade in the $0.91 to $0.93 range.

What risks does tax credit insurance cover?

The risks covered by a policy are defined as covered tax positions. In a §48 transaction they typically span eligibility, cost basis, prevailing wage and apprenticeship (PWA) compliance, bonus adders, and recapture, each covered below. Not all risks need to be covered in each transaction, so the parties agree on the covered positions and review the specific exclusions in each policy.

Eligibility and qualification risk

Coverage typically includes the seller's eligibility to claim and transfer the credit, the placed-in-service date, and the beginning-of-construction date. For other credit types, the covered positions track that credit's qualification tests. In a §45X transaction, for example, a covered position would include that the component produced at a particular facility is an eligible component under §45X and was sold to a third party during the tax year.

Tax basis and fair market value risk

Eligible cost basis, including the basis attributable to a step-up transaction, is a standard covered position in §48 transactions. A buyer may want protection primarily on the stepped-up portion of the credits, which requires a smaller policy limit.

Prevailing wage and apprenticeship (PWA) risk

Compliance with prevailing wage and apprenticeship requirements is among the covered positions in a §48 transaction. Tax credit insurance is available to mitigate the risk of PWA noncompliance and can be sized to make the buyer whole if a penalty is imposed. The exposure is large: if a credit is later found not to comply, the IRS recaptures the PWA multiplier portion, which is 80% of the credit's value. Reunion's §48 ITC due diligence guide directs buyers to confirm that a policy covers PWA compliance or exemption.

Bonus adder risk (energy community, domestic content)

Bonus credit eligibility is a standard covered position. Reunion's §48 ITC and §45 PTC due diligence guides list bonus credit adders among the risks a buyer should confirm the policy covers.

Recapture risk

In a §48 transaction, the tax credit insurance policy pays if the IRS recaptures the credits. It does not pay for recapture caused by the insured's own actions, such as a voluntary transfer of its interest in the project. Reunion's analysis of a real-world recapture case (May 2026) shows how this works. A residential solar seller filed for bankruptcy less than ten months after selling its credits, the liquidation of the project assets changed their ownership, and the ownership change triggered recapture. The buyer, a bank, lost $24.1 million of credits. Its purchases included tax credit insurance covering recapture, and it recognized approximately $32.1 million in anticipated insurance proceeds, covering the $24.1 million credit and an additional $8 million of other costs.

For §48 and §48E ITCs, the recapture period runs five years from the placed-in-service date, with the recapturable amount starting at 100% and stepping down 20% per year. During that period the seller must also meet PWA requirements for any alterations or repairs on the project, so PWA exposure stays open after closing. When sizing the duration of credit support, buyers should also consider the IRS audit statute of limitations, which typically runs three years.

FEOC / prohibited foreign entity risk

As of October 2026, insurance coverage for foreign entity of concern (FEOC) and prohibited foreign entity risk is limited and conditional, and insurers expect it to stay that way until Treasury issues guidance. Where coverage is offered, it is subject to a bringdown once the rules are out, so buyers should not assume conditional FEOC coverage will hold if the final rules differ materially from expectations.

What tax credit insurance does not cover

Tax credit insurance policies typically have standard exclusions. These include inconsistent filing positions, settlement with the tax authority without the insurer's consent, material misrepresentations or inaccuracies, prospective changes in tax law, amendments to or failure to comply with the relevant documents (including the TCTA), and recapture caused by actions of the insured, including voluntary transfer of interests in the project in the case of §48 ITCs.

Buyers should also verify the policy's conditions and exclusions, such as subject matter limitations and tax contest requirements, to confirm they are appropriate for the coverage provided.

How much does tax credit insurance cost?

As of mid-2026, the cost is typically $0.03 to $0.05 per $1.00 of tax credit, an increase from the $0.02 to $0.03 range seen in 2024 and early 2025. Requests for specific covered tax positions add incremental premium, and a higher limit of liability carries a higher premium, so the limit is a negotiated amount between seller and buyer.

Quoted credit prices are generally all-in, meaning the cost of insurance and any intermediary fee is typically borne by the seller. The price a buyer pays assumes the seller covers the intermediary fee, tax credit insurance (if applicable), and potentially a capped reimbursement of professional fees.

Insurance can be difficult to procure or prohibitively expensive for small transactions, for example under $3 to $5 million with a single sponsor, because of minimum premium requirements and fixed underwriting costs. Some developers bundle multiple smaller projects into a single policy to gain economies of scale.

Key policy terms: limit of liability, retention, and gross-up

Limit of liability. The limit is the maximum the policy pays and is negotiated between seller and buyer. Where limits exceed 100% of the credit, the extra coverage reflects buyer demand for protection against second-order costs such as penalties and legal fees. Among Reunion's insured transactions, limits have commonly been at or above 100% of the credit. For §48 transfers, a little over half of insured deals set limits of 110% or higher, with multiple deals above 130%. Across the market, Reunion has observed limits ranging from 30% to 130% of the credit amount. Buyers sometimes accept a lower limit in exchange for better pricing or where other factors reduce risk, such as a strong seller balance sheet.

Retention. Most policies include a small retention, applicable to contest costs only. Buyers should review retention amounts along with exclusions and the named insureds.

Gross-up. Indemnity payments from a seller are generally taxable to the buyer, so indemnity provisions include a tax gross-up to make the buyer whole on an after-tax basis. Insurance proceeds are also taxable: in the recapture case above, the buyer treated an $8 million portion of its $32.1 million in proceeds as a tax expense. Policies address this by including tax gross-up among covered losses, and buyers should confirm the policy is sized to cover lost credits, gross-up, penalties, interest, and contest costs.

Seller-procured vs buyer-procured insurance

Sellers typically purchase tax credit insurance, with the buyer listed as an additional insured. Although less common, buyers may purchase the policy themselves. Where the buyer procures insurance directly, the price of the credit is adjusted accordingly.

Whichever party procures the policy, the buyer should confirm which entities are listed as insureds or additional insureds, and whether coverage is bifurcated so that actions or breaches by the seller do not invalidate the buyer's coverage.

Tax credit insurance by project type

§48 and §48E ITCs. Investment tax credits are the credit type Reunion has seen insured most frequently. In many ITC deals, the buyer may require insurance.

§45 and §45Y PTCs. A buyer might forgo insurance in certain production tax credit transactions where the placed-in-service date is clear and there is little ambiguity about eligibility. Where insurance is used, Reunion's §45 PTC due diligence guide lists qualification and structure risk, production risk, representations and warranties, PWA compliance or exemption, and bonus adders as positions to confirm. The same guide directs buyers to confirm that the policy has an appropriate noncancelable duration and provides coverage through the expected credit period.

§45X advanced manufacturing credits. For the advanced manufacturing production credit, covered positions track the credit's own tests, such as whether the component is an eligible component sold to a third party in the tax year. Reunion's §45X AMPC due diligence guide lists qualification risk, structure risk, and representations and warranties as the positions to confirm.

§45Z clean fuel credits. As of mid-2026, over 90% of §45Z clean fuel production credits are generated by non-investment-grade sellers. Sellers may procure insurance, but many larger §45Z transactions close without it.

Residential and distributed solar. Limits below 100% are concentrated here, with coverage designed for a partial loss rather than a portfolio-wide event.

Key steps to procuring tax credit insurance

1. Agree on insurance at the term sheet stage. Whether a policy is required is negotiated up front, since the premium reduces the seller's net proceeds. Reunion's term sheet process covers tax credit insurance, among other terms, and an executed term sheet opens a 30- to 45-day exclusivity period.
2. Define scope and limit. Main negotiation points include the scope of covered tax positions (and any exclusions) and the limit of liability.
3. Assemble the diligence package. To bind a policy, the parties prepare a full due diligence package for submission to insurers. Binding usually takes several weeks after submission, so the insurance timeline should be built into TCTA negotiations. Insurance procurement runs in parallel with the buyer's own diligence.
4. Place the policy through a broker. Brokers place coverage with a selection of investment-grade carriers. Buyers should confirm the insurers are creditworthy, for example by reviewing their credit ratings.
5. Review the policy terms. Confirm the policy covers the desired risks and is sized to cover lost credits, gross-up, penalties, interest, and contest costs; confirm the named insureds, exclusions, retention, and whether coverage is bifurcated; and review any requirement to claim under the policy before seeking indemnification.
6. Close. Procurement of the policy (if agreed) is a closing condition under the TCTA.

Due diligence is still essential

A policy is a backstop, not a substitute for confirming that the credits qualify.

The IRS rules reinforce this. Reasonable cause, which protects a buyer from the 20% excessive-transfer penalty, turns on the buyer's efforts to confirm the credit amount, and relying solely on the seller's representations is not sufficient. The insurers themselves require a full diligence package before binding a policy.

How Reunion helps buyers and sellers close insured transfers

Reunion helps buyers decide whether clean energy tax credit insurance is an appropriate risk mitigation tool for a given transaction. Where it is, Reunion advises on the scope of coverage, including structure, qualification, recapture, PWA, and bonus credit adders, and where gaps might exist. In deals involving insurance, Reunion validates that the policy is properly sized in the event of a claim. Insurance terms are negotiated as part of Reunion's term sheet process, alongside price, payment timing, fee reimbursement, tax proceedings, and indemnification. Reunion's §48 ITC, §45 PTC, and §45X AMPC due diligence guides each include a tax credit insurance checklist, and the Transferable Tax Credit Handbook covers policy structure, covered positions, and exclusions in more depth.

Frequently asked questions

Who pays for tax credit insurance?
Sellers typically purchase the policy, with the buyer listed as an additional insured. Although less common, buyers may purchase the policy themselves. Quoted credit prices are all-in, so the premium is typically borne by the seller.

Is tax credit insurance required on every transfer?
No. About 40% of Reunion's transactions since 2023 (as of February 2026) have included insurance; the remaining 60% closed on the strength of the seller's indemnification or the parties' comfort with the risk. If a creditworthy guarantor or very large balance sheet provides the indemnity, insurance may not be required.

How much does it cost?
As of mid-2026, typically $0.03 to $0.05 per $1.00 of credit, up from $0.02 to $0.03 in 2024 and early 2025.

Can small transactions be insured?
It can be difficult or prohibitively expensive below roughly $3 to $5 million with a single sponsor, because of minimum premiums and fixed underwriting costs. Bundling several small projects into one policy is one workaround.

How high should the limit of liability be?
Limits are negotiated. In Reunion's insured deals they have commonly been 100% or more, and for §48 transfers a little over half are at 110% or higher. Buyers sometimes accept a lower limit for better pricing.

Will I be made whole if the IRS disallows the credits?
A well-negotiated purchase agreement is designed to make the buyer whole through the indemnity and/or insurance, covering penalties, interest, taxes, contest costs, and fees.