Capital Raising for Clean Energy: The Risk That Is Hard to Insure

Roughly 4 billion dollars in exposed tax credits traded in the first half of 2026, supported by diligence, third party review, and indemnities rather than insurance.

Tax credit insurance is a mature product. Recapture, basis, qualification, change of law: underwriters price all of it and the market uses those policies routinely. One exposure has been harder to place, and it is one of the exposures now influencing prices across the sector.

Coverage for prohibited foreign entity exposure has been difficult to obtain. The reason appears structural rather than commercial. A project either satisfies the content requirements for its credits or it does not, which tends toward a total loss rather than a partial one, and there is little in between for an underwriter to price. Crux, which operates a marketplace for these transactions, reports that coverage for this risk has not been available in the market so far, and that exposure to it became a leading driver of tax credit pricing in the first half of 2026, ahead of deal size and seller creditworthiness. Roughly 4 billion dollars of exposed credits changed hands in the period, about 20 percent of the market, supported by seller diligence, third party validation, and contractual indemnities with balance sheets standing behind them.

This is part of what capital raising for clean energy now turns on. In the United States, tax credit qualification has become a significant input into the cost of capital, alongside rates, resource quality, and sponsor reputation. Two otherwise identical assets price differently depending on when construction began, which method established that date, and how well the equipment supply chain is documented.

Hudson’s leadership has been investing in clean energy since 2002 and has mobilized approximately 13 billion dollars across more than 25 investments in over 25 countries. What follows is where this risk actually sits, why it reached portfolios that were committed years ago, and the asset level questions that surface it.

This article is provided for general information and does not constitute tax, legal, or investment advice.

Why the exposure reaches portfolios already committed

Under the One Big Beautiful Bill Act, applicable wind and solar facilities had to begin construction by July 4, 2026 to preserve credit eligibility on the pre existing terms, unless they qualify under a limited exception or are placed in service before January 1, 2028. That date has passed. The United States pipeline is now sorted into assets that established a construction start in time and assets that did not.

For an allocator, that sorting is not a planning matter. It is a characteristic of funds already closed. A 2024 vintage commitment holds assets whose credit eligibility was determined by work performed, or not performed, before a date nobody can return to. No strategy document describes which side of the line each asset landed on. Only the asset level record does.

Where the construction start rule stands

IRS Notice 2025-42 removed the 5 percent safe harbor as a way for wind and large solar facilities to establish beginning of construction, leaving the Physical Work Test as the primary route. On June 6, 2026, the United States District Court for the District of Columbia vacated that notice in Oregon Environmental Council v. IRS, finding that the agency had acted arbitrarily and capriciously under the Administrative Procedure Act. The vacatur restores the 5 percent safe harbor for wind and solar unless and until the IRS issues revised guidance, and it applies to all taxpayers rather than only the parties to the case, according to Holland and Knight.

Clifford Chance reported in early September 2026 that the government had not filed a notice of appeal within the initial sixty day window, which closed on August 5, 2026, and that any extension request under the appellate rules was due by September 4, 2026. The open question now is replacement guidance, which the court indicated would need to explain the policy change and address reliance interests. Confirm the current status of the docket and any new guidance before relying on this.

In portfolio terms, positions taken while Notice 2025-42 was in force are worth revisiting with counsel. Two funds with identical stated strategies can hold very different amounts of this, and the difference is invisible above the asset level.

Supply chain documentation is now the credit

The second qualification layer is the restriction on material assistance from prohibited foreign entities, measured as a material assistance cost ratio. For 2026 the thresholds are 40 percent for qualified facilities and 55 percent for energy storage, rising to 45 and 60 percent in 2027, then increasing annually to 60 and 75 percent after 2029, per Nixon Peabody’s reading of IRS Notice 2026-15.

Notice 2026-15 set out three calculation methods, and it left the questions practitioners consider most fundamental unresolved, including how to determine whether a taxpayer is itself a prohibited foreign entity. The effective control rule can reach contracts modified after July 4, 2025. Compliance therefore rests on evidence: supplier certifications signed under penalty of perjury, corroborating sourcing records, supply chain mapping on the high value components, and a cost calculation somebody qualified is willing to stand behind.

Crux reports that the transactions clearing in this market share three features. The seller assembled a diligence package before the process started. Third parties validated it, with counsel on entity status and accountants on the cost ratio. And the indemnities were durable, backed by a balance sheet the buyer accepted. Interest in the technology neutral credits under Sections 45Y and 48E rose from 10 percent of buyers in 2025 to 27 percent in the first half of 2026, while roughly 70 percent of buyers stayed selective rather than broadly active.

What this changes about a raise

Credit monetization used to be a step to schedule. It is now a step to underwrite, and several things move with it.

Monetization is no longer an assumption. With most buyers selective, a model that assumes credits clear at market pricing is making a judgment. The diligence package assembled before the process opens determines the price achieved.

Third party validation is table stakes. Legal analysis of entity status and accounting work on the cost ratio now arrive with the deal rather than getting produced under pressure inside a diligence window.

Counterparty balance sheets moved up the stack. Where coverage is difficult to obtain, a primary protection is the indemnity, so the entity behind that indemnity has become part of the asset being underwritten.

Qualified and documented pipeline is a scarce input. Institutions remain under allocated to infrastructure by about 106 basis points against a 6.2 percent target, implying roughly 441 billion dollars still to place, and closed end infrastructure funds are seeking 474 billion dollars, per the Infrastructure Allocations Monitor and With Intelligence. Capital is available, and well documented assets are competed for.

Questions worth asking a manager this quarter

These are asset level questions. A strategy level answer to any of them is itself the answer.

For each asset, which method established beginning of construction, and is the supporting documentation contemporaneous?
For positions taken while Notice 2025-42 was in force, what review has been done since the vacatur, and what would change under replacement guidance?
Which material assistance calculation method was used, and who validated it, counsel or accountants or neither?
Which supplier certifications exist, and what corroborating sourcing documentation sits behind them?
Were any supply or licensing contracts modified after July 4, 2025 in a way that invites an effective control analysis?
Given that coverage for this exposure has been difficult to obtain, who carries it by contract, and what balance sheet stands behind that indemnity?
For assets acquired rather than developed, what qualification diligence was performed at acquisition, and what survived in the purchase agreement?

Where this leaves manager selection

Return dispersion in this asset class has historically come from asset selection and operating discipline. For the current vintage, a meaningful share of it will come from structuring and documentation work performed before an asset was ever shown to an institution. That capability either sits inside a manager or gets bought in transaction by transaction, and the difference shows up in outcomes rather than in marketing.

Allocators are also moving up the risk curve toward core plus strategies, per Preqin, which reports median infrastructure IRR above 8.5 percent for every vintage between 2013 and 2022. Accepting more complexity for more return is a reasonable trade. It works when the manager can price the complexity.

How Hudson works on this

Hudson’s work sits in structuring, which is where qualification risk is either managed early or inherited later. The Heritage Energy Holdings transaction is the public example.

In February 2026, Hudson acted as exclusive advisor and co sponsor in connection with a 28.5 million dollar senior secured financing for Heritage Energy Holdings, provided by Eagle Point Credit. Hudson partner Dustin Muscato led the transaction. Per the announcement, the financing facilitated the acquisition of safe harbored battery assets and their transfer onto the Heritage platform, and Hudson managed the safe harbor financing to meet year end deadlines. The capital supports a network of battery storage and solar projects under 10 megawatts each across the Texas ERCOT market, where Heritage pairs licensed retail electricity operations, through its affiliation with Heritage Power, with distributed generation and virtual power plant capability.

Elsewhere in the portfolio, Horizon Energy serves as a long term power buyer for renewable assets in Japan’s post feed in tariff market, holding the offtake side of the structure. Propel, launched through SolSource Solutions with TriBeam Financial, applies the approach to residential solar and battery financing. Hudson’s leadership helped found Sunlight Financial in 2014 and took the company public in 2021. Across that history, the record adds up to approximately 13 billion dollars mobilized, more than 25 investments, and platforms in solar, storage, distributed generation, hydrogen, and carbon.

Work with Hudson

Hudson works with management teams on capital structuring, strategic development and institutional positioning, including as advisor, co sponsor or co investor, where applicable. Explore the Hudson track record, or reach out to the team directly.

Frequently asked questions

Can clean energy tax credit qualification risk be insured?

Most of it can. Recapture, basis, and change of law are routinely covered. Prohibited foreign entity exposure has been harder to place, because a project either qualifies or does not, which tends toward a total rather than partial loss. Crux reports coverage for that risk has not been available so far, so the market uses diligence, indemnities, and pricing instead.

What does capital raising for clean energy depend on in 2026?

Tax credit qualification has become a significant factor, alongside rates and resource quality. When construction began, which method established that date, and how the equipment supply chain is documented all influence pricing across the capital stack. Crux reports that exposure to prohibited foreign entity risk became a leading driver of tax credit pricing in the first half of 2026.

What happened to the 5 percent safe harbor for wind and solar?

IRS Notice 2025-42 removed it, leaving the Physical Work Test. On June 6, 2026 the District Court for the District of Columbia vacated that notice in Oregon Environmental Council v. IRS, restoring the safe harbor unless the IRS issues revised guidance. Clifford Chance reported that no notice of appeal was filed within the initial window.

What is the material assistance cost ratio?

It is the minimum share of a project’s content that must come from sources other than prohibited foreign entities. For 2026 the thresholds are 40 percent for qualified facilities and 55 percent for energy storage, rising in later years. IRS Notice 2026-15 sets out three methods for calculating it.

What should an allocator ask a renewable energy manager now?

Ask asset level questions: which method established construction start, whether documentation is contemporaneous, who validated the cost ratio calculation, what supplier certifications exist, and which balance sheet stands behind the qualification indemnity. Strategy level answers indicate the work has not been done.