The Canadian government has proposed a new refundable tax credit aimed at promoting clean electricity generation and storage in the country.
Known as the Clean Electricity Investment Tax Credit (ITC), this incentive is designed to encourage investments in non-emitting electricity generation systems, stationary electricity storage systems, and equipment for inter-provincial electricity transmission.
Eligible investments under the Clean Electricity ITC include wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, and nuclear (including large-scale and small modular reactors) electricity generation systems. Abated natural gas-fired electricity generation that meets emissions intensity thresholds compatible with a net-zero grid by 2035 is also eligible. In addition, stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectric storage, and compressed air storage, as well as equipment for the transmission of electricity between provinces and territories, are eligible for the tax credit.
Both new projects and the refurbishment of existing facilities will be eligible for the Clean Electricity ITC. The tax credit will be available to taxable and non-taxable entities, including Crown corporations, publicly owned utilities, corporations owned by Indigenous communities, and pension funds.
To qualify for the full Clean Electricity ITC, projects must meet certain labor requirements, which will be further detailed by the government in consultation with provinces, territories, and other stakeholders. Additionally, projects must have a commitment by a competent authority that the federal funding will be used to lower electricity bills and achieve a net-zero electricity sector by 2035.
The Clean Electricity ITC can be claimed in addition to the Atlantic Investment Tax Credit, but generally not with any other investment tax credit. It will be available as of the day of the 2024 budget, for projects that did not begin construction before the day of the 2023 budget. However, the tax credit will not be available for projects that become available for use after 2034.
The government has stated that it will engage with provinces, territories, and other stakeholders to develop the design and implementation details of the Clean Electricity ITC. They will also conduct targeted consultations on the possibility of introducing reciprocal treatment in light of eligibility conditions associated with certain tax credits under the U.S. Inflation Reduction Act. The government will also consult on the best means to support and accelerate investments in projects that are critical to meeting the 2035 net-zero objective, including intra-provincial transmission projects.
In conclusion, the proposed Clean Electricity Investment Tax Credit aims to boost renewable energy and storage in Canada by providing incentives for eligible investments in clean electricity generation and storage projects. Eligible entities, labor requirements, and other details will be further developed in consultation with stakeholders. This tax credit is part of the government’s efforts to achieve a net-zero electricity sector by 2035 and transition towards a more sustainable and clean energy future.