Last year, Prime Minister Justin Trudeau’s government put in place a refundable investment tax credit (ITC) to help cover up to 30 per cent of the capital costs of investments by private companies in non-emitting power sources such as wind, solar, energy storage and small modular nuclear reactors.Jeff McIntosh/The Canadian Press
A promised federal tax credit to support clean-energy investments by provincial power utilities and Indigenous corporations appears to be dead in the water, after this week’s prorogation of Parliament.
As a result, electricity sectors across the country now find themselves contending with a messy imbalance that could slow investments in major wind, solar, nuclear and hydro projects.
And the situation is contributing to broader industry uncertainty, which also stems from other up-in-the-air policies including the future of the government’s recently imposed Clean Electricity Regulations. This is all happening at a time when new generation sources are needed to prepare for consumer demand projected to at least double by mid-century.
Last year, Prime Minister Justin Trudeau’s government put in place a refundable investment tax credit (ITC) to help cover up to 30 per cent of the capital costs of investments by private companies in non-emitting power sources such as wind, solar, energy storage and small modular nuclear reactors. It was part of a series of long-promised ITCs for clean technology, partly in response to massive green spending in the United States. Those ITCs have now mostly been legislated into existence.
However, Crown corporations are entirely or largely responsible for power generation in some provinces, and Indigenous participation is increasingly a prerequisite for energy projects to be built. So amid sectoral warnings that the private-sector credit would have limited and uneven impact, the government committed to separately introducing a refundable 15-per-cent credit for those entities. Unlike the first credit, that one would also cover large-scale nuclear and hydroelectric investments.
The twin ITCs were already a source of some controversy, because of concerns that the differing rates would still leave public and Indigenous companies less competitive.
Now, those entities may have to make do with nothing.
The government had indicated that the second credit would be advanced through implementation legislation for last month’s fall economic statement. But it’s doubtful that legislation will even be introduced, let alone passed when Parliament returns in March, since opposition parties have vowed to vote non-confidence in the minority Liberal government at the earliest opportunity, and force an election.
That could leave it up to a different government to decide whether to revive the ITC geared toward Crown and Indigenous corporations, level the playing field by scrapping the private-sector credit or leave the imbalance in place.
The opposition Conservatives, who hold a double-digit lead in opinion polls, are not tipping their hand about which option they would choose. Asked about their position on the tax credits’ future, they issued a statement attributed to their finance critic, Jasraj Singh Hallan, which accused Mr. Trudeau of creating policy chaos through prorogation, but did not specify their own plans.
In the meantime, a range of energy-sector representatives and leaders are expressing concern about the consequences of the full tax-credit plan failing to be in place for the foreseeable future, although there are mixed views about how big the impact will be relative to other investment considerations.
Michael Powell, the vice-president for government relations for Electricity Canada – the industry association that represents publicly owned and private utilities alike – suggested that the situation could not only slow projects, but cause higher costs that will be passed to ratepayers.
“The Clean Electricity ITC offered Crown corporations in particular the ability to invest in substantial growth without impacting customers,” he said.
Those impacts, Mr. Powell and others noted, will be much more acute in some parts of the country than others. Alberta stands to be less affected because its power market is almost entirely private, whereas Crown corporations are mostly responsible for power generation in provinces such as Quebec, Manitoba, Saskatchewan, British Columbia and Newfoundland and Labrador.
Then there are mixed markets, most notably Ontario, where some large utilities will be eligible for the federal backing and others will not.
The lack of tax-credit coverage of Indigenous businesses will be more universally felt, since most provinces now require Indigenous participation for major energy projects to move forward, and First Nations businesses have been increasingly ambitious about leading or taking large stakes in them.
James Jenkins, the executive director of the non-profit Indigenous Clean Energy, expressed some hope that a different government will not only bring back the ITC that the Liberals were planning, but do so at a level more equivalent to the 30-per-cent one.
But for the time being, Mr. Jenkins said, the viability of some potential projects for which financial risk is currently being assessed – particularly in the wind, solar and energy-storage spaces – is in jeopardy. And he expressed concern that the situation will encourage private developers to seek only the bare minimum of Indigenous involvement required for future projects.
Axxcelus Capital Advisory chief executive officer Paul Poscente, whose Calgary-based company works with Indigenous communities and businesses on infrastructure projects, framed the tax credit falling through as problematic, though far from the only barrier to building new power sources.
The biggest obstacle, he said, remains slow regulatory processes. But he framed the tax credits as one of many policy unknowns hindering energy-sector investment decisions as the country awaits the next election. The others include the fate of financing agencies such as the Canada Infrastructure Bank and the Canada Growth Fund, industrial carbon pricing and the Clean Electricity Regulations, if there is a change in government.
“Capital is agnostic to politics, but it wants clarity, and it has to understand risk,” Mr. Poscente said. “Everything’s in limbo right now, and the ITCs add to the uncertainty.”