National News

Federal Budget earmarks $3 billion for cleaner energy

On March 22, the federal government released its first budget since ratifying the Paris Agreement. In a summary of the budget, the law firm Borden Ladner Gervais LLP explained the broad implications as follows: “Budget 2017 focuses on building a strong middle class through innovation. The innovation and skills plan includes key goals: having the most skilled, talented, creative and diverse workforce in the world; encouraging world-leading discovery and innovation; better supporting Canadian innovators; and growing Canadian businesses to compete worldwide. Key spending priorities include lifelong skills training, innovation superclusters, and clean technologies. Budget 2017 also invests in communities, in particular by implementing the Canada Infrastructure Bank, enhancing public transit, funding green infrastructure, funding additional childcare spaces, implementing a new national housing fund, and investing in transportation infrastructure.”

          John Gorman, the President of the Canadian Solar Industries Association said, "The social, economic and environmental costs of relying on diesel in Canada's northern and remote communities cannot be overstated. CanSIA applauds the continued leadership and investment demonstrated in today's federal budget in the transition toward local renewable energy resources and away from imported diesel fuels is welcome. Integrating solar, storage and micro-grids is an area where Canada can be the global leader".

          In addition to signaling that further details on the allocation of the $2 billion Low Carbon Economy Fund will be announced in the near future, CanSIA noted that the following is a list of specific allocations to programs that will support the transition to a cleaner, smarter and more distributed energy system:

• $100 million to support smart grid, storage and clean electricity technology demonstration projects.

• $220 million to reduce the reliance of remote communities on diesel fuel and support renewable power.

• $182 million to retrofit existing buildings and build new net-zero energy consumption buildings across Canada.

• $200 million to support the deployment of emerging renewable energy technologies nearing commercialization.

          There was encouraging news for geothermal energy. The law firm Osler, Hoskin & Harcourt LLP explained the developments in a briefing as follows:

“Budget 2017 proposes certain changes to the deduction of expenses related to the acquisition and use of geothermal energy equipment that are intended to promote investment in technologies that contribute to a reduction in greenhouse gases and air pollutants. Classes 43.1 and 43.2 provide accelerated CCA rates (30% and 50%, respectively) for investment in certain clean energy generation and conservation equipment.

          Currently, geothermal equipment used to generate electricity receives preferential treatment relative to geothermal equipment used to generate heat (or heat and electricity) in the following ways:

• Geothermal equipment primarily used for producing electricity is eligible for an accelerated CCA rate of 50% under Class 43.2 whereas geothermal equipment primarily used for producing heat is only eligible for a CCA rate of 4% under Class 1; and

• The costs of drilling and completing geothermal production wells for an electricity generation project that qualifies for Class 43.2 are also included in Class 43.2, whereas the costs of drilling and completing geothermal production wells used primarily for heating purposes are included in either Class 1 (4% rate), Class 17 (8% rate), Class 14.1 (5% rate) or are treated as current expenses, depending on the circumstances.

          Further, certain equipment that is part of a “district energy system” (i.e. a system that transfers thermal energy between a central generation plant and one or more buildings by circulating an energy transfer medium that is heated or cooled with thermal energy) is included in Class 43.2. Geothermal heat is not included as an eligible thermal energy source for use in a district energy system and is thus not included in Class 43.2.

          Lastly, certain intangible project startup expenses are treated as “Canadian renewable and conservation expenses” which can be deducted in full in the year, carried forward indefinitely or transferred to investors via flowthrough shares. To be eligible for this treatment, the intangible startup expenses must relate to a project of which the majority of a tangible property is eligible for inclusion in Class 43.1 or 43.2.

          Budget 2017 proposes the following measures aimed at further promoting investment in geothermal equipment and to treat geothermal equipment used primarily for heating purposes in a manner that is more consistent with geothermal equipment used primarily for electricity purposes:

• expanding the list of eligible thermal energy equipment that qualifies as Class 43.1 or 43.2 to include geothermal equipment used primarily for generating heat or for generating a combination of heat and electricity;

• expansion of eligible costs of property that are included in a CCA class to include the cost of completing a geothermal well and, for systems that produce electricity, include the cost of related electricity transaction equipment;

• making geothermal heat an eligible thermal energy source for use in a district energy system;

• expansion of Canadian renewable and conservation expenses to include expenses incurred for the purposes of determining the extent and quality of a geothermal resource and the cost of all geothermal drilling.

          The new measures will apply to all property acquired for use on or after March 22, 2017, that has not been used or acquired for use prior to that date. Accelerated CCA rates will only be available if the particular property, when it first becomes available for use, satisfies the requirements of all applicable environmental bylaws and regulations.”

          See related article: “Geothermal could be Canada’s most overlooked clean energy resource” IPPSO FACTO, April 2016.

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