The Canadian government introduced a 30% refundable tax credit for capital investments in renewable energy — including solar, wind, tidal, wave, and hydroelectric projects.
Expected to cost $6.7 billion over the next five years, this update reflects the influence of the Inflation Reduction Act (IRA) — US President Joe Biden’s signature legislative accomplishment — which was passed in August and offers generous incentives for cleantech and renewable energy, including tax credits that Canada has now matched.
While this is evidence of playing catch up, Canada’s new clean energy stimulus will pay dividends toward its economy, climate targets, and global standing. The country’s cleantech industry has, for several years now, been on the verge of transformative growth, constrained only by poorly designed provincial energy policies and a lack of private sector support.
New cleantech incentives will make operating in Canada far more attractive for renewable energy producers and should finally tip the scale towards rapid grid decarbonization. This policy change is particularly important for solar developers, which have struggled to gain traction amid inconsistent policy and regulatory frameworks.
In a speech during the incentive’s announcement, Finance Minister Chrystia Freeland highlighted the demand for a revitalized economic approach.
“What Canadian workers need is a government with a real, robust industrial policy; a government committed to investing in the net-zero transition, to bringing in new private investment, and to helping create good-paying jobs from coast-to-coast-to-coast.”
The federal tax credit will also apply to energy storage technologies, sustainable heating solutions, and zero-emission industrial vehicles. Companies that fail to meet certain labour criteria surrounding wages and apprenticeship training opportunities will face a 10% reduction in the minimum tax credit rate.
“The introduction of a Canada-wide solar incentive is fantastic news for the industry and will usher in a new era for renewable technologies,” said Bobby MacCannell, Founder at Brightworks Energy. “As clean energy, particularly solar, continues to scale, it’s critical that Canada not be left behind. It’s reassuring to see the action taken by the federal government to rectify the regulatory imbalance that left Canadian renewable energy producers disadvantaged. This is a big win.”
The IRA’s cleantech incentives have already translated into a more bullish outlook for the American solar industry, which is on track to grow 40% over baseline projections through 2027 — equal to an additional 62 gigawatts of capacity.
Installations are set to nearly triple across the industry’s market sectors, with utility-scale solar leading the way, with an estimated 162 gigawatts coming online over the next five years.
The introduction of mirrored tax incentives in Canada is likely to lead to a similar growth trajectory, especially as its solar industry benefits from a world-class carbon pricing mechanism that will reach $170 per tonne by 2030. This provides a built-in competitive advantage for clean technologies like solar and has been recognized by climatologists and economists as the most efficient way to reduce emissions.
Investors should be paying close attention to the Canadian solar industry, as the optimal conditions for a renewable energy and cleantech boom have been laid. While unknown, these initiatives may also catalyze further provincial action on renewable energy adoption, which could give the Canadian solar industry an edge over its American counterpart.
The tax credits apply for both commercial and utility-scale solar installations. Homeowners can access residential solar incentives through Canada’s Greener Homes Initiative.