Atlantic Global Risk announces the placement of the first tax liability insurance policy for a significant transaction in the carbon capture and sequestration (CCS) sector.
Following the enactment of the Inflation Reduction Act, the owner of a large Midwest facility saw an opportunity to leverage the financial incentives in Section 45Q to meet environmental goals and enhance economic performance. Over the 12-year 45Q credit period, the CCS project will sequester millions of tons of CO2 in a secure underground geological formation via a Class VI well.
To finance the substantial investment needed for the CCS project, the client utilised a tax equity “partnership-flip” structure for part of the 12-year Section 45Q tax credit period. Additional financing for the remainder of the 12-year credit period is expected through further tax equity transactions and/or tax credit transfers, depending on which options prove most beneficial in the future.
Since the 45Q tax credits are crucial to the project’s economics, the potential loss of these credits posed a significant risk due to the client’s indemnification and guarantee obligations. Although the tax equity investor did not require tax insurance, given the client’s strong credit rating, the client saw substantial value in securing a robust tax insurance policy backed by A-rated insurers to protect against the loss of these tax credits.
Atlantic collaborated closely with nearly all tax insurance underwriters in the North American market to design and place the first-ever 45Q tax insurance policy. This policy protects our client against potential issues with facility qualification for the credits, transferability of the credits, and recapture. Atlantic’s approach, combined with a collaborative underwriting process with trusted partners, enabled a market-leading solution.
Placed in February of this year, the policy offers a 10-year coverage period with an aggregate liability limit of $785 million, ensuring comprehensive protection against potential losses and safeguarding the investment and commitment to sustainability.
The Minneapolis-based energy practice of Brown & Brown Insurance, which brokers casualty insurance lines for the client, played a crucial role in orchestrating a comprehensive insurance package and ensuring a smooth placement process.
