Seven Takeaways Investors Should Know About The Western Canadian Renewables Market

Western Canada has seen exponential growth in its renewable energy sector in recent years, and private capital is increasingly being directed towards clean energy development and generation in the region. While regulatory initiatives impacting the sector remain in flux, Canada has a long history of supporting energy development, and we have seen continued investment flow into provinces like Alberta, with the promise of more renewable development on the horizon.

In this article, we highlight key considerations for investors looking to leverage opportunities in renewable development in the area. Our Calgary office discusses these topics and more in the rest of our series, "The renewable west: green energy outlook for Western Canada."

Key takeaways for investors

1. Fertile ground for renewables. Western Canada is naturally rich in wind and solar power, with Alberta leading Canadian wind energy production in the last decade ¹ and significant growth projected for solar generation ². In addition to the region's abundant natural resources for renewables, provinces like Alberta boast a business-friendly environment for investors and project owners through their low corporate tax rate, deregulated electricity market, and municipal and provincial incentive programs.
2. Multiple government investment credits. In an effort to cultivate green energy development, the federal government is offering an array of investment tax credits (ITC) to curb the costs of developing clean energy projects, offering refundable tax credits up to 30% of the capital cost of the project. This includes the Clean Technology ITC, the Carbon Capture, Utilization and Storage ITC, the Clean Hydrogen ITC, and the Clean Electricity ITC, among other ITCs proposed. These credits are available not only to taxable Canadian corporations but also to foreign investors who utilize the appropriate investment structures (e.g., a Canadian subsidiary).
3. Complementary carbon offsets and environmental attributes. Companies looking to offset their emissions or meet other carbon-reduction commitments can enter into compliance or voluntary carbon markets, with renewable projects presenting unique opportunities for those interested in purchasing such offsets or allowances. Alberta's energy-only market, combined with the market for carbon offsets, allows companies to enter into agreements to receive carbon offsets and other environmental attributes.
4. Robust use of private power purchase agreements (PPAs). Private PPAs are contracts between electricity generators and private buyers that enable the generators to hedge against future power price volatility, providing revenue certainty in certain electricity markets. PPAs also allow the buyer to acquire environmental attributes or access certain regulatory incentives, such as investment tax credits and energy cost abatement programs.
5. Rising renewables M&A. Canada has seen a surge of deals in the renewables sector. In 2023, renewables accounted for nearly half of all deals in the infrastructure space, showing strong growth from the previous year. There are signs of sustained growth for renewable M&A against the backdrop of the energy transition. For example, the clean technology sector in Alberta is projected to contribute $61 billion to the Canadian gross domestic product by 2050 ³.
6. Diverse investment strategies. Investors are allocating more capital to renewables in the region, attracting interest from a diverse range of financial players, including large European developers, private equity, pension funds, and Japanese trading houses, among others. This broad interest is yielding a suite of creative approaches to investing. Financing one-off projects has been an attractive option for those looking to explore the market before making a larger investment; however, we have also observed more platform growth in the renewables space with institutional investors and others acquiring or financing a developer with a pipeline of assets that can produce thousands of renewable energy megawatts.
7. Creative financing options. Project financing is expected to be a key source of the private capital needed to meet Canada's energy transition goals. Federal incentives are in place to attract private capital, including the ITCs, the Smart Renewables and Electrification Pathways Program, and funding from the Canada Infrastructure Bank for both developers and lenders in the form of subordinated debt, equity investment and other financing arrangements. In addition, many western provinces and municipalities offer their own tax rebate or other incentives for clean energy development and generation.

Footnotes

1. Provincial and Territorial Energy Profiles – Alberta. Canada Energy Regulator.

2. Ibid.

3. Government of Canada invests in Alberta's clean technology industry, Energy Transition Hub. January 19, 2022, Government of Canada.

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