The commercial real estate industry’s transition to net-zero was substantially bolstered by yesterday’s release of the 2023 Federal Budget. Several tax credits and incentives were released, which will provide financial support to implementing the specific renewable energy technologies most commonly used in commercial real estate applications, including rooftop solar PV, heat pumps, and geothermal systems.
For context, the 2023 Federal Budget built upon measures originally announced in the 2022 Fall Economic Statement adding clarity and new provisions. The government’s focus on investing in the clean economy has been accelerated by the 2022 release of the Inflation Reduction Act in the US with Canada seeking to compete for global energy transition investment dollars. Please note that the 2023 Federal Budget provisions below are subject to enacting legislation, which will provide further implementation details.
Rooftop Solar PV for Industrial / Commercial Buildings
Rooftop solar PV systems are a highly effective means of producing renewable electrical energy on-site for industrial or commercial buildings. Budget 2023 introduces the new Clean Electricity Investment Tax Credit (“ITC”). The Clean Electricity ITC is a 15% refundable tax credit which includes both solar generation and battery storage systems. While an attractive incentive, the 15% ITC rate was reduced in Budget 2023 from the 30% ITC signaled in the Fall Economic Statement.
A critical component to receiving this credit is meeting specified labour requirements for the installation – barring which the ITC drops to 5%. Labour requirements include ensuring that wages are paid at the prevailing level, based on union wages and benefits in the applicable jurisdiction. Furthermore, at least 10% of the tradesperson hours must be completed by registered apprentices.
A key addition under Budget 2023 is that the Clean Electricity ITC applies to both taxable and non-taxable entities, including pension funds, acknowledging the significant contribution that well-capitalized non-taxable entities bring to the energy transition.
In terms of timing, the Clean Electricity ITC will be available as of the day of Budget 2024 for projects that did not begin construction before the day of Budget 2023. The ITC will be phased out after 2034. In short, solar PV projects that begin construction from now up until 2034 will be eligible to claim the ITC.
Geothermal & Heat Pumps for Multi Residential / Office / Life Sciences Buildings
Geothermal systems and heat pumps are fundamental technologies to support the real estate industry’s transition from fossil fuels to renewable sources, to provide building space heating and cooling.
Budget 2023 builds on the 2022 Fall Economic Statement by confirming and enhancing the Clean Technology Investment Tax Credit with the intent of supporting Canadian businesses in the adoption of clean technology. Under this ITC, a 30% refundable tax credit is applicable for qualifying technology, including geothermal systems and heat pumps applicable for real estate.
A key addition to the Clean Technology ITC in Budget 2023 is the inclusion of geothermal energy systems, which are eligible for CCA allowance Classes 43.1 and 43.2. This specific inclusion ensures the relevant piping (and likely the associated cost of drilling), pumps, heat exchangers, and associated equipment is included based on our review of the corresponding CRA technical guides.
As the Clean Technology ITC appears to cover both in-suite heat pumps units as well as the central plant, the business case for owner-developers considering geothermal paired with in-suite heat pumps is further enhanced under an Energy-as-a-Service framework offered by AltCrest. In other words, the base building in-suite equipment benefits from the 30% ITC.
The Clean Technology ITC similarly requires the same minimum prevailing wage and apprenticeship requirements outlined above.
Canada Infrastructure Bank and Debt Financing
Our discussions with owners pursuing decarbonization objectives confirm that low-carbon strategies are being implemented for both new development and retrofit applications.
As a Crown Corporation, Canada Infrastructure Bank (“CIB”) and its aggregator partners can also be strong allies to the real estate community for the base building retrofits of commercial assets, offering substantially below-market financing rates and innovative strategies such as Energy Savings Performance Contracts (“ESPCs”).
Per Budget 2023, CIB’s mandate to support the energy transition has been enhanced. CIB will invest at least $10 billion through its Clean Power priority area and an additional $10 billion in its Green Infrastructure priority area.
Budget 2023 introduces a number of incentives and benefits to support real estate owner-developers in their energy transition objectives. At AltCrest Energy, we support the real estate industry’s transition to net-zero by developing rooftop solar PV systems, geothermal systems, and other renewable energy technologies. We operate under an Energy-as-a-Service (“EaaS”) framework, whereby we invest in the systems in exchange for an energy contract. The owner benefits from capital cost savings and a hedge against grid escalation, all while meeting their decarbonization objectives.
Please follow the link below to refer to the full text of the Budget 2023 document: https://www.budget.canada.ca/2023/pdf/budget-2023-en.pdf