Management Consulting

The renewable energy sector has seen significant growth, leading to an increase in mergers and acquisitions (M&A) activity. However, dealmakers face challenges in accessing capital, particularly as M&A activity has slowed in 2024. To address these issues, innovative risk transfer solutions have emerged as critical tools for facilitating transactions and improving capital access. These solutions include a variety of risk programs such as traditional property and casualty insurance, surety credit, cyber insurance, and tax insurance, which help mitigate risks and lower expenses. One specific challenge faced by renewable energy companies is the complexity of tax regulations and the potential for unexpected tax assessments. To combat this, tax insurance has become a strategic financial tool in M&A transactions. It allows sellers to cover indemnity obligations for pre-close tax exposures and provides buyers with protection against heightened tax issues. Under the Inflation Reduction Act (IRA) in the U.S., approximately $370 billion in tax incentives are available, which has catalyzed investment in renewable energy projects. Since the IRA's enactment, $110 billion has been invested in clean energy projects, with 60% of this funding coming from foreign companies, demonstrating the global impact of these tax incentives. Additionally, surety bonds have emerged as a valuable alternative to traditional bank letters of credit, requiring less capital to secure and freeing up resources for other needs. This flexibility is particularly beneficial for sellers, as it alleviates the need to hold guarantees related to divested business activities. Furthermore, trade credit insurance is being utilized to enhance accounts receivable and lower financing costs, which is crucial in a volatile economic environment where securing debt can be challenging. Overall, the effective use of these tailored risk transfer solutions not only mitigates risks but also unlocks substantial capital for investment in renewable energy initiatives, thereby accelerating the transition to a low-carbon future.