BC Hydro, in conjunction with British Columbia’s Ministry of Energy, Mines and Low Carbon Innovation, will issue a call for power for new sources of renewable, emission-free electricity in spring 2024 (Call for Power). The Call for Power includes a requirement for Indigenous equity participation in proposed projects. Here are four things you should know.
1. There must be at least 25% Indigenous equity in the project
BC Hydro is prioritizing projects that include meaningful equity participation by First Nations. A draft request for proposals (RFP) outlines the requirement that projects include equity participation by “one or more B.C. First Nations whose asserted traditional territory includes the location of the proposed project.” The RFP defines equity participation in a relatively flexible manner that may provide for unique structuring options. The level of Indigenous equity must be maintained for at least three years from the commercial operation date. The RFP also contemplates other potential incentives for increased Indigenous participation or evidence of support from other First Nations.
Depending on the location of the proposed project, identifying the appropriate First Nation partner(s) may be a complex matter. As discussed below, decisions made at this stage will also have significant strategic implications as parties seek to navigate the ensuing project approval processes, given the B.C. government’s commitment to implementing the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP).
2. Indigenous equity creates unique tax and corporate considerations
The Call for Power’s renewable energy requirement aligns with recent federal efforts to stimulate investment in clean energy infrastructure through Clean Investment Tax Credits (CITCs). For more background on these credits, please see our March 2023 Blakes Bulletin: 2023 Federal Budget: Selected Tax Measures. Generally, CITCs could provide proponents with a refundable tax credit of 15–40% for certain eligible expenditures on their projects.
Although valuable, the CITC regimes present myriad potential pitfalls to proponents, including restrictions on the types of entities that are eligible, stringent prevailing wage and apprenticeship requirements, long-term recapture rules, complex partnership allocation rules, and technical calculations of various tax attributes such as the cost base of capital properties (including partnership interests).
These complexities are further compounded by the Call for Power’s stipulations regarding Indigenous equity participation. For example, tax-exempt entities such as First Nations may not be eligible for certain CITCs, and the prevalence of government and non-government assistance (discussed below) to acquire this equity may affect the computation of certain CITCs. The limited partnership structures typically preferred for Indigenous equity participation may also not be optimal. Proponents will need to carefully structure their projects to maximize the benefit of CITCs.
3. Increasing sources of Indigenous capital
Potential sources of capital to support Indigenous equity participation are diversifying beyond the traditional proponent loan.
The RFP notes the Canada Infrastructure Bank (CIB) may provide financing opportunities for Indigenous equity participation. On November 27, 2023, the CIB launched an Indigenous equity initiative that proposes to provide Indigenous communities with financing to purchase an equity ownership stake in infrastructure projects within their traditional territories.
Government-backstopped loan guarantee programs may also provide an opportunity. These programs have been available in several jurisdictions for many years, including Alberta, Saskatchewan and Ontario. Recently, a number of high-profile Indigenous equity transactions in the energy sector have received financial backing from the Alberta Indigenous Opportunities Corporation.
On February 22, 2024, B.C. announced the launch of its own program as part of Budget 2024. The First Nations Equity Financing Framework includes the establishment of a special account with an inaugural balance of C$10-million to support immediate capacity funding needs for First Nations considering equity participation in priority projects. The framework also provides for the Treasury Board to dedicate portions of the revenue realized through prioritized projects to the special account, and to expedite provincial government guarantees for equity loans undertaken by First Nations. The proposed special account will have a cumulative loan guarantee of C$1-billion and will be reviewed annually.
The federal government is similarly taking steps to make more funding available for Indigenous participation in natural resource project development. In the 2023 Fall Economic Statement, the Government of Canada announced that it is developing an Indigenous Loan Guarantee Program to facilitate Indigenous equity ownership in major projects in the natural resource sector. An update is expected in the forthcoming 2024 federal budget.
4. An accepted project may be subject to consent-based assessment processes under B.C.’s Environmental Assessment Act (BCEAA)
A successful project under the Call for Power may require an environmental assessment under the BCEAA. The environmental assessment process in B.C. has changed significantly since the last call for power in 2008. The process is unique in Canada and came into force in 2019 as part of the B.C. government’s broader commitment to implementing UNDRIP. The BCEAA creates a number of critical stage-gates for achieving consensus or consent with participating Indigenous nations in relation to the assessment process, with a dispute resolution process available if consensus or consent is not achieved. For more information on the process, please see our November 2018 Blakes Bulletin: Government of British Columbia Introduces Indigenous Consent Requirement for Major Projects.
As a result of these requirements, the decision of a proponent to partner (or not to partner) with specific First Nations may have significant implications for the project approval process. In many places in B.C., First Nations have overlapping traditional territories, or there may be internal disagreements as to which group represents a particular First Nation. It is important that proponents ensure a decision to partner with one or more First Nations does not limit their ability to develop good working relationships with other potentially impacted First Nations. These relationships will be critical for successfully navigating both the assessment and ongoing approval processes in B.C.
