The Clean Electricity Investment Tax Credit (ITC) is one of the federal government’s tools to encourage investment in clean power generation in Canada. However, for project developers and investors, accessing the credit means more than checking a few boxes—it requires navigating a complex and evolving landscape of eligibility criteria, regulatory frameworks and shifting political priorities.
In this episode of Clean Incentives, host Brendan Sigalet is joined by Bennett Jones partners David Macaulay and Jessica Kennedy to unpack the practical realities of the Clean Electricity ITC. Together, they explore what makes this credit different from other clean economy incentives, how it affects Indigenous and tax-exempt entities and the regulatory and interconnection hurdles specific to Alberta and other jurisdictions. The discussion also examines how political dynamics may impact energy investment across North America.
Transcript
David Macaulay: [00:00:00] Participation by Indigenous groups in energy projects in Canada is really a cornerstone of a lot of our major projects. And, you know, whether it's pipelines, transmission infrastructure, LNG projects or power projects, Indigenous participation is, is critical. So. I think it'll be interesting to see how these ITCs unfold and whether they will provide appropriate mechanisms to continue to allow effective participation by the indigenous groups.
Brendan Sigalet: [00:00:39] Welcome to Clean Incentives, a podcast series within the Bennett Jones Business Law Talks podcast that discusses topics around taxation incentives for developing clean technology projects in Canada. I'm Brendan Sigalet, a Tax Associate at Bennett Jones. LLP, and my practice focuses on the tax aspects of energy transition deals, including renewable energy, carbon capture, and hydrogen projects.
Before we begin this podcast, please note that anything said or discussed on this podcast does not constitute legal advice. Always seek proper advice from your legal advisor, as every situation is different and outcomes can vary.
In this episode, we're focusing on the Canadian Clean Electricity Investment Tax Credit, a key incentive designed to accelerate investment in clean electricity generation projects. We'll begin by unpacking high level details of the Clean Electricity Investment Tax Credit, exploring how it works and who qualifies.
So at its core, the Clean Electricity ITC, it's a 15 percent refundable ITC available on the capital cost of clean electricity equipment, which includes refurbishment expenditures. It's going to cover a lot of the same equipment as the Clean Technology Investment Tax Credit. So you have your solar, wind, hydro, electricity generation equipment, which includes large scale hydro and pumped hydro. Also included is nuclear energy equipment. Including large scale, geothermal, waste biomass, electricity generation equipment, stationary electricity storage equipment, such as batteries, qualified natural gas energy equipment. So that's natural gas power plants abated with carbon capture, provided with the emission intensity of 65 tons of CO2 per gigawatt hour of gross electricity, interprovincial transmission equipment. And so that's the main types of equipment that are covered by this, one of the main differences between this investment tax credit and any of the other clean economy investment tax credit that had been announced by the government of Canada is that this clean electricity ITC can actually be claimed by both taxable Canadian corporations and certain tax exempt entities, whereas all the other clean economy ITCs can only be claimed by taxable Canadian corporations.
So the Clean Electricity ITC can be claimed by Provincial Crown Corporations, corporations owned by municipalities or Indigenous groups, and Pension Investment Corporations. One note is that Provincial Crown Corporations can only claim this ITC where the Minister of Finance has designated the province as an eligible jurisdiction, but in 2024 provided certain conditions that had to be met in order for that to happen, including the province has to have committed to a net zero electricity period by 2035, and that Crown corporations in that jurisdiction, the value of the clean electricity ITC, will use electricity bills and rate payers in the jurisdiction.
There's also some compliance requirements, as with all these clean economy ITCs, of course, there's going to be compliance. In particular, in this case, it's for the Qualified Natural Gas Energy Equipment, so that's the abated natural gas power plant. They're going to have to submit a project plan to NRCan, similar to, you know, the Clean Hydrogen ITC or CCUS tax credit. And then they're also going to have to file annual compliance report 10 or 10, and that report must show that the actual emissions intensity of the project does not exceed 68.5 tons of CO2 per gigawatt hour. That's the 65.5 percent minimalist exemption. And then there's also recapture and other similar features as the other clean economy ITCs.
One thing we just want to highlight was that there is a lot of overlap between the Clean Technology Investment Tax Credit and the Clean Electricity Tax Credit. Generally, they cover a lot of the same property and the reason for that, the separation comes with the types of entities that can actually claim this ITC.
In this case, you have the tax exempt entities who are also able to claim it, and then further, the types of projects that this will actually apply to. So you're seeing more large scale nuclear, for example, large scale hydro projects. These really can be massive projects that are eligible for this ITC, but not the Clean Technology ITC. And that's kind of indicative of what the government's seeking to incentivize with this ITC. Larger scale electricity production, and it's agnostic as to who is generating that electricity. Tell me, explore the development of these projects are 2 senior partners here at Bennett Jones, each who bring a unique expertise to the table.
David Macaulay, a leading energy lawyer and head of our power, renewable energy practice will share his insights on the complexity of large scale energy infrastructure projects. And then we have Jessica Kennedy, a regulatory partner specializing in electricity market regulation and resource development, and she'll shed light on the regulatory frameworks, shaping these projects together. They'll help us understand how this tax credit can spur innovation and development in the clean electricity sector. Welcome both to the podcast. David, so you can introduce yourself and your energy group.
David Macaulay: [00:06:09] Thanks for having me on the podcast. We have proud roots in the energy sector and we celebrated our hundredth anniversary a couple of years ago.
In terms of our team, I'm based in Calgary and head our power and renewable group, but that is really part of a broader national energy infrastructure team, which is practicing in each of our main offices. While the majority of our practice involves energy project work in Canada, we do regularly act on international projects in areas such as Australia, South America, Mexico, the US and the UK. And as part of our project work, we like work closely with the other teams in our firm, including Jessica and her regulatory team.
Brendan Sigalet: [00:07:00] Jessica, thanks for joining as well. Can you also introduce yourself and the work that the regulatory group here does to Bennett Jones?
Jessica Kennedy: [00:07:06] Yeah, thanks, Brendan and thank you so much for having me as you mentioned, I'm in the regulatory practice group and energy regulatory in particular. And broadly speaking, we help project proponents across the country help get their infrastructure projects approved, and in this case, including renewable projects, coal projects, DCS projects, and the like, helping them navigate the regulatory framework across different jurisdictions in Canada. And to also help them understand the regulatory complexities that they're entering into. It's no surprise that the regulatory regime applicable to energy projects is only getting more complex, especially in this area of transition and clean tech, and therefore having an in depth understanding of the local regulatory requirements is really key to successful development of these projects. So we play an instrumental role, I would say, in that understanding.
Brendan Sigalet: [00:08:05] David, when looking at the electricity sector in Canada, what does the Alberta electricity marketplace look like, and what makes it unique, and how does it compare to other provinces?
David Macaulay: [00:08:14] Well, we've got a real mix between different jurisdictions. Our market models range from fully deregulated market in Alberta to regulated market model in other jurisdictions, Alberta is the only fully deregulated market in Canada and by deregulated market. I mean, that the ISO or our system operator operates a power pool, which establishes a price for electricity based on market forces of demand and supply and this deregulated market has been in place for a decade. Almost 25 years now, the wire side of our industry in Alberta being transmission and distribution system is still a regulated market serviced by the regulated utilities that run wires. However, when it comes to Generation Alberta, we are an openly competitive market. In the other regions in Canada, both the generation and transmission.
So the wire side of the business is operated by regulated entities. And instead of a price being set by demand and supply and an open market, as we have in Alberta, the price associated with those services is established. By a regulatory process, which is based on an approved cost of service model, you know, maybe in terms of differences between the jurisdictions in Canada. I think it's important to note that we have a very different generation mix across Canada. And just to highlight a few of the distinctions, Canada has a high concentration of hydroelectricity in Quebec, British Columbia, British Columbia. Manitoba, Ontario and Newfoundland. Yukon has a fair amount of hydroelectricity as well.
In Canada, the hydroelectricity accounts for approximately two thirds of our national power supply on the nuclear power front. The largest amount of nuclear power we have in Canada is in Ontario, New Brunswick, and other jurisdictions are looking at introducing SMRs or small modular reactors as part of their generation mix.
The majority of our natural gas fire generation is not surprisingly in Alberta and Saskatchewan. And I think it's worth noting that the natural gas fire generation is really the backbone of the Alberta generation market. It's important to note that Alberta has had the largest renewables growth in the country in recent years. And Alberta has also recently phased out coal fire generation completely. Each of the provinces and territories across the country, for the most part, have been actively introducing renewable generation into their mix. And we've seen a lot of solar and wind power together with biomass, and we're starting to see more battery storage development across the country.
I think a few things to take away from this is that we will continue to see a broad mix of generation across the country, and we need to recognize that there are regional differences. And further, when we're looking at the country as a whole, our electricity generation mix has one of the world's lowest carbon intensities of any country in the world, and we should be very proud of that.
Brendan Sigalet: [00:11:24] Yeah, I think that with respect to all the hydro development that's taking place across Canada, it's definitely something to be proud of the amount of electricity being generated by hydro and the definitely the growth and renewables and other parts of Canada. You mentioned something about a cost of service model. Just briefly, could you touch on what that entails? Is that? Basically, the electricity providers in those regulated marketplaces will put together what the actual, their cost is, and then they get a certain percentage on top of that. Is that how that works? Or how does that work?
David Macaulay: [00:11:55] So I'll let Jessica weigh in a bit on that element of the process and the manner in which the rate applications will work in different jurisdictions.
Jessica Kennedy: [00:12:04] Yeah, sure. So cost of service is essentially a utility model where regulated utilities will, just as you say Brendan, recover the cost of providing the utility service in addition to an approved rate of return, and they're highly regulated to ensure that they are not exploiting their monopolistic abilities, essentially.
Brendan Sigalet: [00:12:24] David, who are some of the generators in the Alberta market?
David Macaulay: [00:12:28] In Alberta, we've got a mix of large incumbents, including Capital Power and TransAlta. We have municipality owned generators such as Epcor, Enmax, City of Medicine Hat. We've got oil and gas and other industrial companies such as CNRL, Imperial, Cenovus, Pembina, Huskey, Suncor and others. And then we've got numerous independent power producers, IPPs. That are both Canadian entities and international companies that have invested in the market. So it's a very broad sector of participants. This varies a little bit in the other provinces and territories. For instance, BC, Saskatchewan and Ontario have had a number of calls for power from IPPs with the result being that generation is provided in those jurisdictions by both the regulated entity and the IPPs that are delivering electricity to the regulated entities in those provinces, whereas other provinces, the majority of the generation is owned by the applicable regulated entity in that region.
Brendan Sigalet: [00:13:32] So in, in certain jurisdictions, like in BC, you're saying that, that there's a regulated entity, which will basically subcontract to other power producers in order to get further power. Is that how it works?
David Macaulay: [00:13:43] So in British Columbia, BC Hydro is responsible for ensuring that there's sufficient generation available to meet the needs within the province.
BC Hydro has had over a number of years, various calls for power. So these would be requests for proposals to industry to provide power and independent power producers have developed generation in the province and under a long term power purchase agreement will sell that power to BC Hydro.
Brendan Sigalet: [00:14:16] Okay. And then is BC Hydro, they're the regulated entity. Is it a crown corporation or is it just a regulated private corporation?
David Macaulay: [00:14:25] BC Hydro is a crown corporation.
Brendan Sigalet: [00:14:27] Okay. So the crown corporation is a regulated entity and then they'll put out the request for power and then independent power producers can then fill that request through power purchase agreements?
David Macaulay: [00:14:39] Yes, and when you say fill that request, what the IPPs will do, they will bid into, typically bid into an RFP process, and in the event that they are selected as the developer, the proponent, they'll enter into a long term agreement. You're welcome. Electricity purchase agreement or our purchase agreement in that jurisdiction.
Brendan Sigalet: [00:15:01] Okay. Interesting. And Jessica, as the clean electricity ITC relates generally to new electricity equipment for power projects, perhaps at a high level, could you tell us how new generation projects are approved?
Jessica Kennedy: [00:15:17] Yeah, absolutely. We're sitting here in the Calgary office and there's been quite a lot of development experience in Alberta on the power generation side, including renewables and so we have a very established approval framework here.
For renewable projects in particular, there is a established environmental requirements that must be satisfied. There is a process with Alberta environment and protected areas. That is again, fairly well established that proponents go through, they get what's called a referral report and then they take that along with their stakeholder engagement and a bunch of project details and assessments. And they put it before the Alberta utilities commission. And the Alberta Utilities Commission considers all of that together with any additional stakeholder input and ultimately makes what is referred to as a public interest determination. So they determine whether these projects are in the public interest and should go ahead.
And I'd say these requirements, as I've described, are generally consistent with what's in other jurisdictions, where you have environmental components, assessments, you've got Indigenous engagement in some cases, where Crown land is involved, and you have a public interest determination made. Based on various inputs about these development projects and so definitely that looks different in terms of who the key regulators are and how the process unfolds, depending on your jurisdiction. Those are the kinds of things that during to whether the projects are ultimately approved.
Brendan Sigalet: [00:16:51] Interesting. And specifically for Alberta, was that, was this, whether or not projects were in the public interest, I seem to remember that was somewhat related to the whole renewable pause concept.
Jessica Kennedy: [00:17:03] Somewhat. So in August of 2023 the Alberta government put a pause on issuing new approvals for renewable projects. And so essentially anything that had an application in front of the Alberta Utilities Commission, or was about to apply, they all had to go pens down and wait until that pause was over and it ended in February of 2024 and then those applications resumed processing, quite a number of them have been approved since that time. And, you know, the regulatory process is sort of moving forwards now. And during that pause, there was an inquiry that was held about renewable projects and some of the issues that were coming up that were common across. The various different types of projects, visual impacts from wind in particular, agricultural impacts from solar and the like. And there was an inquiry held about that and new requirements that have unfolded now in 2024 and continue to unfold.
Brendan Sigalet: [00:18:07] Interesting. And David, as far as from a commercial perspective, what are the key factors that generators are looking to when making decision to add new generation?
David Macaulay: [00:18:17] One of the key factors before we get into the commercial issues is really regulatory risk and uncertainty. And when we, when Jessica is talking about the regulatory issues that are facing the generators in the province of Alberta, you know, that's certainly a factor. We've seen that have a bit of a dampening effect on development activities in recent times, just in the last few months.
But generally, as it relates to commercial risks, the proponents are going to be assessing the revenue and cost certainty associated with projects as well as regulatory and political risks in different jurisdictions. And I think that the decisions around revenue risk are going to be very different depending on the nature and use of the generation.
If the developer is generating for its own industrial needs, then clearly that decision associated with the development of generation is going to be underpinned by the economics of particular project and the project's power requirements. If the developer is an IPP that we were talking about earlier, an independent power producer in Alberta, looking to sell power into the power pool, then that developer needs to assess whether it can take merchant risk and by merchant risk, I mean, whether they can take a risk associated with revenue that Gibson flows with the pool prices that float and that's like, I say, it's called a merchant around contracted exposure, but generally power developers in the province of Alberta need some contractual underpinning of project revenues and cannot take the merchant risk. And so in Alberta, that type of arrangement is generally and risk is generally covered through what we call virtual power purchase agreements, which are essentially, they're not a physical sale of electricity, but instead it's a financial settlement. Of electricity where the seller is or developer is, in effect, swapping it's floating pool price for a fixed pool price that the buyer has agreed to pay. And in those renewable projects, there's also a sale of environmental attributes only to the buyers as well. In other jurisdictions, the contracting arrangement is a little bit different. And it's like, Brendan, that we talked about the BC Hydro. Scenario where IPPs are still in their generation to the regulated entity, and there'll be a contracting environment under a long term power purchase arrangement, but the principle is the same that the generator is seeking some degree of long term revenue certainty. So that's the revenue side of the equation at a high level. The cost side of the equation is, as you'd expect, an evaluation of the costs associated with procurement of equipment, the costs of engineering and construction of the plant.
Interconnection costs, land costs, regulatory costs, costs of financing, and developers are looking at ways to mitigate all of these costs, you know, generally through contracting strategies, the that. Your podcast is focused on our critical part of the cost side of the project development.
Brendan Sigalet: [00:21:46] Yeah, no that's interesting. And so it seems to me that, so you have sort of the regulated world, you have the regulated entity, and then they'll, they essentially are locked in to produce a certain amount allowed by the regulator, and then they almost then get requests for power to a sub level. And then you kinda have a freer market underneath them and they're kind of the entry point into the market.
Is that kind of how it works? And then in Alberta you just have a deregulated market where you know, everyone's just bidding power directly into the system. And then you just have the independent power producers right at, the top level, so to speak, without the regulated in entities in between.
Is that, am I understanding it right? Or is there, I'm sure there's more nuance to it, but is that works?
David Macaulay: [00:22:33] No, I think that at a high level is a fair characterization of the Alberta market where you'll have a market participants that will bid their power into the pool, and there is a clearing based on demand and supply and in the regulated jurisdictions, there will be behind the regulated entity, there will be a series of contracts with power producers, or the regulated entity will have its own generation, which will have a cost structure and the regulated entity will then in rate hearings over time will be submitting into the regulator, their cost profile, and the regulator will be approving the costs associated with generation, which will As you say is a mix, it's a mix of the generation they own and the cost to produce, and it's also a mix of the contracts that they've entered into, and the costs associated with those contracts.
Brendan Sigalet: [00:23:28] Hmm, interesting. And in either perspective, adding a 15% investment tax credit that reduces the capital cost of the equipment in order to produce the power would presumably be helpful in bringing down the cost of that. And Jessica, are there any particular legal under regulatory requirements project proponents need to consider when developing this added capacity?
Jessica Kennedy: [00:23:53] Yeah, really, when it comes to renewable projects in particular, siting becomes very important and, you know, are you located close to transmission infrastructure are you located?
Brendan Sigalet: [00:24:06] Sorry, Jessica, sitting, you just mean like where the plants actually can be located?
Jessica Kennedy: [00:24:11] Yeah, sorry. Yeah, locating the project within the jurisdiction that you're looking at.
Brendan Sigalet: [00:24:16] Okay, and that's referred to as citing.
Jessica Kennedy: [00:24:18] Yeah, finding these ideal sites for your project. Gotcha. Yeah, so citing is a very critical point in project development. It can make or break projects depending on, you know, whether they've been suitably cited. And a key consideration of that is access to the transmission grid. If you're located right next to a transmission line that has capacity to take on. The generation that you're going to be bringing online, that's an ideal site from a grid planning perspective. However, if that's in a highly environmentally sensitive area, that will be less ideal from an environmental perspective. And if it's located next to a very busy municipality, and there are. numerous residences involved don't, that are not supportive of the development, then that can count against you in terms of your siting. Siting these projects in a way that balances all of the various different competing considerations is very important and it happens very early on in the planning of these projects. And the regulatory implications that come from that sort of fall behind and will sort of work themselves out once that location has been secured. So that's sort of on the early stage in terms of requirements to consider. Obviously you want to understand what the local regulations are that apply and they're different for every jurisdiction.
Some jurisdictions rely heavily on municipalities. So the local requirements are, there are truly local in those instances. And then I would say. In terms of regulatory requirements, the other major thing to consider is interconnection. What does that process look like? How long does it take in the jurisdiction you're in? Are you going to be faced with congestion issues on the transmission system? You know, we talked a bit about RFPs with some of the major utilities across the province, BC, Ontario, Saskatchewan, and. When they are evaluating proposals from different IPPs for projects to connect to their systems, they are considering where those projects are relative to the capacity on the system and the planned enhancements of that system. And if you're not located close enough to those lines, you could lose the bid. So, it's very important to consider interconnection and what that looks like for your project. The assessments required for that can take a long time, you know, it's not unusual to see interconnection details take 18 months or so to work themselves out. So, it's. It's obviously a very important regulatory consideration for these projects.
Brendan Sigalet: [00:27:14] And who are you dealing with in determining kind of these interconnection things? Is that what the regulator, like, couldn't that be the AUC in Alberta sort of thing?
Jessica Kennedy: [00:27:23] No, it tends to be the system operator, whoever that is. So in Alberta, that's the Alberta electric system operator. Ontario has a similar entity, the ISO in Ontario. It is jurisdiction specific.
Brendan Sigalet: [00:27:38] It seems like there's a lot of players in the system. I think David had mentioned both, how that there is the transmission side was regulated and then we have the deregulated side with respect to the power production and selling into the system. Just wondering if you could maybe just go through where does the AESO fit within that framework and where does the AUC fit within that framework?
Jessica Kennedy: [00:27:58] Right. Yeah. There are quite a number of regulatory players and the AESO and AUC, it's all alphabet soup. The Alberta Electric System Operator, as I was saying, they plan the system. So they ensure that they have adequate transmission in place to meet the forecasted needs of the system. And then they actually get the transmission facility owners. So these are the regulated utilities to construct those projects.
The ISO is responsible for establishing the need, and then the transmission facility owners are responsible for looking at where those wires should be built precisely on which lands and to route them appropriately. And then all of that is subject to oversight by the Alberta Utilities Commission. So the commission is actually the overarching regulator, it regulates the ISO. It regulates the transmission facility owners. It regulates distribution utilities as well. And it regulates the power producer. So the AUC has sort of regulatory authority at this level for Alberta's electricity industry. And then, of course, all these other players have a role to play. I mentioned earlier the Alberta Environment and Protected Areas Department. It's their That has interface here with some of the development side of things. Yeah, there's a lot of players in there, but hopefully that gives a bit of a lay of the land.
Brendan Sigalet: [00:29:28] Yeah, I think Jessica, I think that's quite helpful in laying out all the different players when I assume that they'll be different, but it's kind of a similar, somewhat similar structure in different jurisdictions.
You had mentioned something about the environmental considerations there. I just, I think that's a nice segue. Obviously, there's a regulatory side with respect to the interface with the Utilities Commission, but then there's also the regulatory side in actually getting these projects built hoping you can maybe touch on, some of the upfront requirements from a regulatory perspective and building a large natural gas project, a solar project, or maybe a pumped hydro project, or something that things that project proponents should consider in getting these projects built.
Jessica Kennedy: [00:30:13] Yeah, sure. In your lead and you're talking about environmental considerations, and I think that's right. I think environmental impacts associated with developments of all types is a key consideration in inciting again and how you develop these projects. Large scale hydro on existing water courses has, you know, fisheries implications it often has. It's federal regulatory oversight as a result, and so that can be somewhat complex in contrast to small scale community generation has fewer environmental impacts at play. So it's usually a regulatory, a more, more streamlined from a regulatory perspective. And so, it really depends on the technology that you're dealing with and the specific project.
Something to consider with natural gas fire generation, for instance, is what is the carbon abatement strategy? What does that look like? And what are the pipelines associated with? The CCS, for instance, and there's separate licensing required for those and the environmental considerations associated with all these sort of ancillary infrastructure as well. So it's very site specific project specific in terms of what those environmental considerations are. But universally, you know, they're important. I'd say the other thing that's universally important would be stakeholder engagement and indigenous engagement. So if you have neighbors that to an industrial facility that are industrial in nature, I think that's an easier path typically from a regulatory perspective.
Then when you are locating near sensitive environmental areas that are used by indigenous peoples, or you are located near a busy neighborhoods that don't want to have this industrial development nearby in stakeholder engagement, getting to know the neighbors. And getting on top of what the overall receptiveness will be to your project is another key consideration in developing these large scale projects.
Brendan Sigalet: [00:32:27] Particularly, this was brought up on our episode on the CCUS tax credit. And as soon as I hear First Nations, I started just getting zeroed in on the tax concepts of it was 149 sub one entity. Let's exempt from tax. You know, how are we going to keep that exempt tax exemption? And then I forget the bigger picture of what are these projects? They're big. big projects that need to be built oftentimes on that land that you need indigenous consultation on First Nations consultation. And, you know, definitely a key perspective to keep in mind, but also something that kind of leads to one of the unique features of the Clean Electricity ITC is that it can be claimed by certain. So you can, you can have it claimed by a First Nations group or corporation wholly owned by a First Nations group. So what are some factors that should be taken into consideration when partnering with a First Nations group for corporate structuring?
David Macaulay: [00:33:20] Participation by Indigenous groups in energy projects in Canada is really a cornerstone of a lot of our major projects.
And, whether it's pipelines, transmission infrastructure, or, LNG projects or power projects, indigenous participation is critical. So I think it'll be interesting to see how these unfold and whether they will provide appropriate mechanisms to continue to allow effective participation by the indigenous groups that, you know, we've seen in a lot of structures participation through.
Limited partnerships by the indigenous groups for tax reasons, Brendan that you'll be very familiar with. And I'm curious to know whether these ITC models, again, will support effective participation by those groups.
Brendan Sigalet: [00:34:15] Yeah, no the limited partnership issue is always a very touchy one with respect to these clean economy ITCs, all of them, not just the clean electricity ITC, traditionally, as you mentioned that First Nations groups often engage through limited partnerships. Finance has disincentivized the use of limited partnerships, not just for tax exempt entities, but also for even taxable entities with respect to some of the rules as to how you can take advantage of these ITCs. And so it definitely is a very live issue. And it'll be interesting to see how it unfolds as to ensuring that these First Nations groups can have effective participation in these entities without having to incorporate a taxable Canadian corporation, which is clearly not the intent of the legislation, if you want the First Nations group to be able to participate as a tax in these incentives, and you specifically single that out, you obviously don't want them to be incorporating a taxable Canadian corporation. Definitely, you know, a lot of issues that we're continuing to work through on the tax front with respect to structuring in order to ensure that they can have effective participation. How about from a regulatory perspective? Jessica?
Jessica Kennedy: [00:35:31] It's interesting because that's really where this all starts, right? Starts on the development side on working in traditional territories of First Nations peoples and finding ways to work together and to share some of the benefits that come with development with those affected communities.
And that's what drives a lot of the incentives to partner with indigenous groups. And so it's sort of come full circle where now it's a commercial requirement in many cases to have First Nation participation specifically when participating in those RFPs that David was mentioning earlier. So, where you have like BC Hydro, for example.
Or the Ontario ISO's procurement processes, there is a minimum amount of First Nation equity ownership that you need to have to even participate in those procurements. So it's interesting now that it's. We're talking about, you know, First Nation participation and how that intersects with the tax incentives to develop these projects and structuring those entities appropriately.
And yeah, it's certainly complex, but the route of it is to improve the relationship with the Indigenous peoples where these projects are being developed. And so where you have partnerships, and this occurs in Alberta as well in the absence of those RFP processes. It does help in building that public interest case that I mentioned earlier, right?
So you've got these regulators that are looking at these large scale developments saying, is this in the public interest? Well, where you have First Nation equity participation and sharing of the benefits of these projects with the communities that are going to be affected, it's perceived more favorably from a public interest perspective and can help on the regulatory side of things.
Brendan Sigalet: [00:37:32] David, as we're podcast, I was hoping I could get your thoughts on the potential implications on the incentives and the power sector of various recent shifts. In political landscape in North America.
David Macaulay: [00:37:55] Over the decades, Canada has seen many energy policy shifts from time to time, but I'm not sure that they're any shifts that are more significant than the developments we've seen over the last 10 years in respect of energy transition and CO2 emission reductions. And that's really, a global shift that your podcast has been talking about the significant incentives that are in place or coming into effect in Canada. A lot of these have been driven by the massive incentives introduced. By the Biden administration and the IRA, the Inflation Reduction Act. And I know that those have been a subject of your prior podcasts. We know that capital is highly mobile and we know that it's going to move to competitive markets. I think that it's been interesting to watch the developments in the US and Canada over the last few years. And we've seen an enormous amount of, of development in the US and in Canada in the renewable energy sector, and it also seems like we're coming into a crossroads on energy policy again with the recent US election. The speculation is that there'll be some potentially significant changes to the made by the Trump administration, and we may see some tax incentives disappear in the US And it's really unclear how deep those changes will run.
I was at a National Energy Roundtable event in Toronto last week, and there was speculation that as many of the IRA incentives. are benefiting states that voted Republican. We may see many of the incentives remain in place, but time will tell. And from a market perspective, we've got a lot of money sitting on the sidelines, waiting to be invested. North American electricity demand is expected to grow significantly. We're talking about trillions of dollars being invested in the North American energy infrastructure over the next 10 to 20 years, the US is looking to increase its manufacturing sector. And this is only going to be further emphasized by the Trump administration. We have Ontario and Quebec that are looking at ramping up manufacturing. We've got industrial growth in Alberta and other provinces. Expected to be very significant. We have data center development and other related infrastructure expected to drive large energy needs.
And while what we're seeing in the market is a growing recognition that energy transition has to be pursued on a reasonable timeline and in an economically responsible manner. We do know that energy transition is continuing and electricity needs are growing and all that to say that there is a great deal of uncertainty in the North American markets. And we know the market does not like uncertainty. And as I said, capital is going to move to jurisdictions that provide less uncertainty. And we've seen a lot of examples in Canada over the years of Capital leaving the country, including in the LNG sector and our oil and gas industry as a result of regulatory uncertainty. And I think what we need right now is strong government and clear and practical policies, which are incenting the right development activities. And we need our federal and provincial governments working together to develop consistent policies to give the market confidence that Canada is the place to invest.
Brendan Sigalet: [00:41:42] Any final thoughts from you, Jessica, as far as, message to project proponents who are considering, potentially building a big project that might be eligible for the Clean Electricity ITC?
Jessica Kennedy: [00:41:53] I don't want to repeat myself too much. I think a key message for me is That regulatory requirements are, you know, they are what they are. We can advocate for streamlined and effective regulation by governments. But from a proponent's perspective, it's key to understand them and learn them and work with the consultants and the local personnel that know the ins and outs of the regulatory regime. To ensure you know what you're walking into and can navigate any potential hurdles early in the process.
I've seen really good projects rise and fall on the regulatory side. I think it's a, that would sort of be my key message on this. And in terms of, you know, this can't help but thinking and commenting about the political changes that have happened in the US and that are expected in 2025. And, echo David's comments in terms of getting aligned between the provinces and the federal government on some of these things. I think a lot of the discourse right now is fully unhelpful, whether you're developing conventional development, unabated natural gas development, for instance, or renewable projects, because where you have differing perspectives from the different levels of government, I think it just it makes investment investors nervous. So the more we can sort of work together to find smart policy solutions. That would be very beneficial, I think, to us as a country.
Brendan Sigalet: [00:43:21] Thank you for taking the time to listen to this episode. Don't forget to hit the follow and like button on whatever podcast platform you are using to listen to this episode.
Take care and we will catch you in the next episode.
Please note that this publication presents an overview of notable legal trends and related updates. It is intended for informational purposes and not as a replacement for detailed legal advice. If you need guidance tailored to your specific circumstances, please contact one of the authors to explore how we can help you navigate your legal needs. For permission to republish this or any other publication, contact Amrita Kochhar at kochhara@bennettjones.com.
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