Contributed By Dentons Canada LLP
Carbon Regulation Developments
The federal government will implement through the Greenhouse Gas Pollution Pricing Act a “backstop” cross-Canada carbon pricing plan by 1 January 2019. The backstop applies to provinces and territories that do not implement a carbon tax or cap-and-trade regime in line with federal standards. For carbon-taxing jurisdictions, Canada will require a CAD20/tonne rate in 2019, rising to CAD50/tonne in 2022.
While BC, Alberta and Québec – representing just under 50% of Canada’s population – will have forms of carbon pricing in place in early 2019, Ontario committed to scrapping its cap-and-trade regime following the May 2018 election of a new government led by Doug Ford. For its part, the Saskatchewan government has launched a constitutional court challenge to the federal policy that will be closely watched over the coming months. The Manitoba government, also objecting to the federal policy, has announced a “made in Manitoba” plan at a flat CAD25/tonne; this will become non-compliant with the mandatory federal rate of CAD30/tonne in 2019. Alberta’s carbon tax is set to be a major issue in that province’s scheduled 2019 election.
We see a trend towards increasing use of “green” financing tools to finance alternative energy and power projects, and in particular “green bonds” and “green loans”. Energy producers are increasingly looking at expanding their green credentials beyond operations to their capital markets and borrowing activities. At the same time, though apparently slower to develop in Canada than in many markets, we are seeing a growing investor and lender base focused on “green” opportunities. Traditional providers of debt funding for renewable projects, for example, have gone to market with sizeable green bond financings with proceeds earmarked for the development of renewable power and energy efficiency. “Green loans” would be an obvious tool for this on-lending by market intermediaries. These same debt providers are coming under increasing pressures to “green” their loan portfolios by shifting more of that portfolio to renewable and alternative energy. Institutional investors, including Canada’s largest pension funds, are more publicly stating their green investment goals. A few of Canada’s power producers have issued green bonds. These trends have and will continue to interest Canadian municipalities and provinces in issuing their own green bonds to finance projects relating to alternative energy and power, and as these issuances deepen the market for green finance we expect more power producers to issue green bonds into the market and to label their loans as “green loans”.
Alberta is the first Canadian province to introduce Property Assessed Clean Energy (PACE) legislation. As PACE develops in Canada we expect new green financing opportunities to emerge.
Large Hydroelectric Projects and International Transmission Projects
Several large-scale hydroelectric power projects are currently in construction phase across Canada, including the 824 MW Muskrat Falls Facility in Labrador (production expected in 2020), the 695 MW Keeyask Facility in Manitoba (production expected in 2021) and the 1,100 MW Site C Facility in British Columbia (production expected in 2024). Strategy papers produced by the respective provincial governments show that increases in demand for clean energy resulting from projected population growth and the expected electrification of transportation were key to the decisions to license these projects. In Manitoba and Labrador, a further justification was the potential for sales of clean energy into the US market, necessitating the construction of the Maritime Link transmission line from Newfoundland into Nova Scotia and the Bipole III transmission line in Manitoba (completion expected in 2018). Demand for clean energy in the north eastern USA is strong, with the states of New York and New England pledging to reduce emissions to 25% lower than 1990 levels within the next two years. In addition, the approval by the state of Massachusetts of the Northern Pass Transmission Project proposed by a partnership between Hydro-Québec and Eversource Energy demonstrates the potential willingness of these states to look north of the border for the clean energy required to enable them to meet their pledges. As a result of this, and the increase in clean energy production capacity in Canada in the next six years, we expect the proposal and development of international transmission line links between Canada and the US to continue to be a key theme in the next 12 months.
Energy storage is a developing area in Canada but it seems clear it will be part of and will impact the evolution of the alternative energy and power sector. We continue to see storage solutions looked at as complementary opportunities to renewables development. Other storage solutions are being developed to function independently of other power developments and in fact to tap into yet untapped sources of energy in industrial and other processes. Larger utilities are experimenting with the use of storage solutions to defer investments in their distribution systems and system operators. The Ontario Independent Electricity System Operator in particular, has successfully carried out a number of procurements for energy storage to provide technical services for grid stability.
Aboriginal Participation in Renewables Development
Aboriginal groups are increasingly taking a stake in Canadian renewable projects. Over 150 such projects with Aboriginal participation are currently in operation, representing an estimated CAD2.5 billion in cumulative future profit for partner communities.
This trend continues to build momentum. In Alberta, the second-round REP was announced to award power contracts for up to 300 MW of renewable capacity specifically from bids with 25% or greater Aboriginal equity participation. Likewise, in May 2018, SaskPower and the First Nations Power Authority (an organisation representing numerous Saskatchewan Aboriginal groups and industry partners) signed a First Nations Opportunity Agreement to source 20 MW of waste flare gas power generation projects over 20 years.
15th Floor, Bankers Court
850 - 2nd Street SW Calgary
AB T2P 0R8 Canada
+1 403 268 7000
+1 403 268 3100www.dentons.com