Q4 | Torys QuarterlyFall 2023

Project finance trends: public policy powering the green economy across Canada

The 2023 federal budget marked an important milestone in the federal government’s green economy strategy. In that budget, Ottawa unveiled major initiatives to scale up green energy and clean tech manufacturing capacity, with proposals for over $60 billion in tax credits and $20 billion in sustainable infrastructure investments. This federal commitment will be funded by three vehicles: the Canada Infrastructure Bank (CIB), the Smart Renewables and Electrification Pathways Program (SREP) and the recently announced Clean Investment Tax Credits (ITCs).

All these funding arrangements are designed to attract private capital to complete the build-out of green energy projects across Canada, and project financing is expected to be a key source of that private capital. While questions persist about the interplay between these three federal incentives (and applicable provincial energy policies, particularly in Alberta), we expect significant growth in project financings resulting from this massive investment in the green economy. A look at various federal and provincial approaches to growing the green economy provides a glimpse into where project financing opportunities or challenges will arise in the near term.

Government of Canada

Clean Investment Tax Credits

While developers are still considering how to optimize the integration of ITCs into their development strategies (and uncertainty around the finalization of the applicable legislation persists), there is no question that the ITCs (which can be as high as 30% of the cost of the clean technology invested in any given project) are a material boost for developers. Notwithstanding this, the ITCs are only available when eligible property is available for use, which means that funding for construction is required (and the ITC only works as a partial reimbursement of such funding).

Further, we expect that other constituencies (in addition to developers) will expect to reap some of the benefits of ITCs. For instance, in certain cases, we have seen proposed adjustments to provincial and corporate power purchase agreement (PPA) pricing that takes effect if a counterparty receives ITCs, and similar asks from engineering, procurement and construction contractors and original equipment manufacturers could follow, especially since such contracts are also being adjusted to account for labour and related objectives embedded in the ITCs.

On the financing front, lenders are considering the possibilities of bridge-financing the ITCs as an internal rate of return enhancement to borrowers, and financing structures are generally being revised to comply with proposed regulations and to maximize return to developers.


Funding allocated to the SREP program totaling $1.56 billion under the federal 2021 and 2022 budgets has been fully allocated as of August 2023. Funding was granted in respect of energy deployment and capacity-building projects of varying sizes, with approved funding ranging from $10,000 to $50 million. A large portion of the renewable project financings that we’ve worked on over the last 12-18 months in the provinces of Ontario, Alberta and Saskatchewan have included a component SREP funding, with funding ranging from $3 million to $50 million. Given the quick uptake of the funding available under the program to date, the additional $3 billion allocated by the 2023 federal budget toward the SREP program is a welcome addition. Financing strategies that allow for equity bridge-financing techniques are becoming critical to incorporating the SREP into a project financing.

Canada Infrastructure Bank

Over the last few years, CIB has become a key player in Canada’s project finance landscape. Since an investment from CIB can take shape in various forms (including subordinated debt, an equity investment or other financing arrangements), developers and lenders have been able to explore new financing structures and risk-sharing mechanisms, making it easier for projects of all sizes to access CIB funding and complete projects that would otherwise not be financeable. The CIB has also entered into strategic partnerships with provincial governments (notably Ontario and Nova Scotia), resulting in energy procurement request for proposals (RFPs) that include the use of a stapled CIB investment option. The 2023 federal budget included an additional $20 billion for the CIB, and we expect the CIB to be particularly important to the financing needs of Indigenous communities that have equity investments in green energy projects.

Province of Ontario

After more than a decade of strong supply, Ontario is entering a period of emerging electricity system needs, driven by increased demand, the retirement of the Pickering nuclear plant, the refurbishment of other nuclear generating units, as well as expiring contracts with older generation facilities. In response to these system-wide reliability needs, the Independent Electricity System Operator (IESO) has launched the long-term request for proposals (the LT1 RFP), which aims to acquire capacity services from new build and expansions to existing electricity resources starting in 2025.

The IESO is seeking to competitively procure approximately 3,700 megawatts (MW) of year-round electricity reliability services from new build electricity resources through the LT1 RFP, measured on an effective capacity basis. Of this 3,700 MW, the IESO has stated that it is targeting 2,500 MW of energy storage and at least 1,500 MW of non-emitting resources. These assets will be connected to Ontario’s distribution or transmission system, registered in the IESO-administered markets, and capable of delivering more than 1 MW continuously for at least four consecutive hours. It is expected that this build-out will be funded in large part by a combination of federal funding and project financing solutions, and will continue the trend initiated by the Oneida Energy Storage project (Torys represented the project borrower and certain sponsors) toward the application of traditional and new project financing structures to energy storage projects.

Province of Alberta

On August 3, 2023, the Government of Alberta announced a seven-month pause on approvals for renewable energy projects over 1 MW—including wind, solar and geothermal projects. According to a study by the Pembina Institute, public data shows that this moratorium impacts 118 projects that are currently in development and are either waiting for permitting approval or could submit an approval application within the next few months. These projects represent at least $33 billion of investment and are a key component of the largest build-out of wind and solar development in Canada since the advent of Ontario’s Green Energy Act. Where the province goes next is unclear, though pressure seems to be mounting to lift the moratorium with certain conditions on the speed at which the green economy grows in Alberta. Meanwhile, a robust pipeline of permitted merchant projects (financed on the back of virtual PPAs with private counterparties and carbon offset economics) continues to be project financed utilizing novel, debt-sizing parameters, which reflect a willingness for banks to take some measure of merchant-power exposure.

Province of Saskatchewan

In 2022, the Saskatchewan provincial government approved 700 MW of new renewable generation to be added in south-central Saskatchewan by 2027. This new capacity will include 400 MW of new wind generation and 300 MW of new solar generation for the region. SaskPower is on track to reduce its CO2 emissions by at least 50% from 2005 levels by 2030. In the process, the amount of non-emitting electricity in Saskatchewan's generation mix will increase from approximately 35% today to between 40% and 50%. A key element of Saskatchewan’s green energy program is a focus on facilitating investment by local Indigenous communities. Torys has been at the forefront of this development, having advised the lenders to the Bekevar Wind Project, partially owned by the Cowessess First Nation.

Province of Québec

On March 15, 2023, Hydro-Québec awarded seven proposals for a total of 1,303 MW of installed renewable energy capacity, with the expectation that these projects will be connected to the grid prior to December 1, 2026. The proposals had been submitted in response to two RFPs by Hydro-Québec in December 2021—the first targeting 480 MW of renewable energy and the second targeting 300 MW of renewable energy specifically from wind energy. Following this, on March 31, 2023, Hydro-Québec initiated an RFP for an additional 1,500 MW of wind energy in response, and it has received 16 tenders for a total installed capacity of 3,034 MW. Hydro-Québec is expected to award the winning proposals in the next few months. Further RFPs may be initiated by Hydro-Québec to target specific areas where capacity is not sufficiently met from the winning proposals.

We have also seen novel project financing structures come out of the Québec market, including the recent closing by Boralex of the 200 MW Apuiat wind farm on Québec’s North Shore, where a group of lenders led by Desjardins Group provided a rare 25-year term loan facility with interest rate risk covered by a novel ESG swap.

Province of Nova Scotia

On August 13, 2021, the Province of Nova Scotia (through its Procurement Administrator, CustomerFirst Renewables) issued a draft Rate Base Procurement (RBP) request for proposal to procure a target of 1,100 gigawatt hours (GWh) or 350 MW of renewable, low-impact electricity from independent power producers. The suppliers selected through the RFP process will be awarded a 25-year PPA with Nova Scotia Power Incorporated (NSPI). The RBP is intended to assist the province in achieving its 80% renewable electricity standard by 2030 and support the province’s goals. The Nova Scotia pipeline is expected to be funded by a combination of project financings and a stapled CIB royalty product. This may be an indicator of future financing structures to be implemented in Canada.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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