Budget 2026: Ottawa proposes incentives to encourage buildout of electrical grid

The federal budget contains encouraging news for certain provincial electricity transmission projects, but it doesn’t elaborate on how Ottawa intends to help fund a more integrated interprovincial system.

The Carney Liberals are proposing a series of tweaks to tax incentives meant to encourage grid buildout, starting with making high-voltage provincial transmission lines eligible for the Clean Electricity investment tax credit, which refunds up to 15 per cent of some capital costs.

The Electricity Strategy, released earlier in May, hinted at plans to extend that tax credit to certain major high-voltage intraprovincial transmission lines, but the budget clarifies that only the lines with the highest voltage in each province will make the cut.

In Quebec and Newfoundland, for instance, the threshold will be lines built to operate at a minimum of 735 kilovolts, while in Alberta, Ontario, Manitoba and British Columbia, it will be 500 kilovolts.

This indicates Ottawa is targeting highly powerful transmission lines that cover long distances, the kind that are built to service high-scale generation, nuclear and mining projects.

The proposed North Coast Transmission Line in B.C., for example, would be a 500-kilovolt line built to power energy projects such as Ksi Lisims LNG and the Golden Triangle mining area.

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No funding commitments for interties

Last spring’s electricity strategy highlighted the importance of boosting regional integration to help meet the ambitious goal of doubling Canada’s electricity production and transmission by 2050, keeping up with expected growth.

Currently, Canada’s electricity system consists of separate grids that are governed independently, with much of the electricity trade infrastructure built toward the United States.

The strategy said that while jurisdiction primarily rests with provinces and territories, the federal government has a role to play in enabling interprovincial trade. It suggested developing a cost-sharing model that includes Ottawa.

At an energy ministers conference in the Northwest Territories this summer, federal minister Tim Hodgson identified five priority interprovincial transmission projects. These included a new project connecting B.C. and Yukon, and improvements on four existing lines.

The federal government provided some funding for feasibility studies on several of these projects.

While the budget did not include more funding for these projects or for other interties, it proposed $37-million to advance cost-benefit studies and cost-sharing discussions.

It also provided some money for Natural Resources Canada to carry out data modelling to help guide investment, such as some of the work the federal Major Projects Office is doing under its Transmission InterConnect Investment Strategy.

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Extending tax credits by five years

The Carney Liberals are also proposing to extend the Clean Technology and Clean Electricity investment tax credits beyond the initial 2035 date, targeting projects that will come online before 2041.

The move is meant to provide more certainty for longer-term projects, such as Churchill Falls, whose transmission lines grace the cover of this year’s federal budget.

The Clean Technology tax credit, which refunds up to 30 per cent of capital costs, would be reduced to 15 per cent in 2040.

Ottawa is also exploring a domestic content bonus, ranging from five to 10 percentage points depending on the tax credit, to be consulted on over the next 60 days.

The federal government estimates these changes will cost $38.5-billion.

The budget suggested some of these fiscal costs are partly offset by a lower-than-anticipated use of the clean economy investment tax credits and battery manufacturing supports.

For example, in the Spring Economic Statement, the federal government expected the clean economy tax credits would cost $400-million this year, but revised that down to $200-million in the fall budget.

Speaking on background, a government official said this amounts to a couple billion dollars in savings over the next few years, but that the uptake of the program fluctuates depending on multiple factors, including U.S. policy on clean technologies.

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Tweaks for the mining sector

Ottawa is also proposing a five-year extension of mining tax credits that were set to expire in 2027.

This includes tax credits for mineral exploration, which targets 15 per cent of related expenses, and for critical minerals, which applies to 30 per cent of expenses.

It also proposes to add antimony to the list of minerals eligible for the Critical Mineral Exploration Tax Credit. Antimony is widely used in modern defence systems and renewable energy storage systems.

Ottawa did not budge on the biggest budget request from the Association for Mineral Exploration, which was enabling feasibility and economic studies spending to qualify as a Canadian exploration expense.

It is, however, proposing that helium exploration and development be allowed to qualify as a CEE.