Financing Canada’s energy superpower ambitions

Current trends

Pricing stability

With the Bank of Canada holding its policy rate steady at 2.25% as of the date of this publication, the financial backdrop to the project financing market is more predictable than in previous years, providing a stable floor for long-term project finance modeling. Most "higher-for-longer" rate fears have faded both in the bank and private placement markets, but this secular trend is subject to short-term geopolitical dislocations (such as the prospective oil crisis relating to the navigability of the Strait of Hormuz) that could spook the financial markets and widen spreads.

Battery storage boom

The Ontario IESO LT1 procurement for battery storage projects has attracted significant involvement from project finance lenders and remains a hotbed of activity, with several large multi-project financing transactions currently in the market or recently closed. We expect this to continue as awards for LT2 projects are announced in Q2 of 2026.

Digital infrastructure takes off

While Canada still lags the US by a wide margin, data centre, cell tower, and fibre optic project financing transactions (or acquisition financings applying project financing metrics) have hit the market on a recurring basis, often adopting some of the transactional approaches developed in the US (including with respect to billed-but-not-built attribution and hybrid DSC/LTV debt sizing metrics).

The Alberta government is banking on the province’s access to cheap natural gas, cool climate, streamlined regulatory approvals, and deregulated power market to position itself as a hub for AI and data centre infrastructure in North America. The main struggle the government is facing with such ambition is to avoid public grid strain from these very power-intensive projects and, as a result, it is strongly encouraging data centre developers to self-supply their projects with their own power sources, including natural gas plants. This will inevitably lead to opportunities for project financing to fill gaps in a project’s capital structure.

Transmission powers forward

There are two factors contributing to a significant resurgence of project financing activity for transmission projects: (i) major provincial utilities like BC Hydro (the North Coast Transmission Line) and Nova Scotia Power (the NS-NB Reliability Intertie) are making major investments in transmission infrastructure to promote nation-building ambitions; and (ii) distribution and transmission companies throughout Canada are restructuring the ownership of existing lines to facilitate Indigenous ownership (for example, the 450-kilometre, 230 kV double-circuit East West Tie project in Northern Ontario).

Upcoming financing opportunities

Project finance lenders are waiting in the wings for federal and provincial government initiatives or funding commitments to launch a number of projects that will require project-level financing to reach completion.

Areas that Torys is watching include:

Potential future developments

Transmission on a mission

The transmission initiatives highlighted above could be the tip of the iceberg on the way to a national grid. East-west energy “corridors” are being pitched as an antidote to the risk inherent in the current north-south orientation. However, such linkages have significant economic benefits in addition to nation building. Long distance connections provide a natural hedge to the intermittency of renewables and the ability to arbitrage energy peaks, whether through demand profiles or solar generation plus storage. Increased intra-Canadian linkages allow for improved energy planning predictability: access to a greater aggregate load significantly derisks the build-out of generation (especially for complex, long-lead projects like nuclear).

Historically, the primary impediments were technological (line losses), economic (insufficient demand given local and southern markets), and political (a challenging history of interprovincial energy flows and transactions). High voltage direct current cables now make transmission viable over long distances or as submerged underground cables (for example, the IESO’s current Third Line RFP) and economic/political considerations now provide a tailwind.

Robust upgrades

The combination of aging energy infrastructure in need of replenishment, the necessity to harden critical portions of such infrastructure against physical and/or cyber-attack, and the growing requirements of grid resiliency (increasingly extreme natural phenomena are not going away any time soon) signify massive capital requirements in perhaps the least exciting aspects of energy policy—areas that were historically left to utilities and local distributors. Given the “everything, everywhere, all at once” nature of these requirements and the practical limits of annual rate increases, we expect project finance to be the key funding driver of these necessary initiatives.