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First Nations Clean Energy Development Outlook

By Rob Miller - October 30, 2013 under First Nations, Resources + Major Projects

On October 27, 2013, Rob Miller was asked to speak at Clean Energy BC’s annual Generate Conference on his predictions for the future of British Columbia’s clean energy industry. Here is a summary of some of his thoughts:

Power of the Collective

Recent events have demonstrated the increased negotiating power of First Nations – especially when acting collectively. The $200 million Pacific Trails Pipeline IBA, negotiated collectively by fifteen First Nations, is a clear example of the phenomenon at work. We see this trend continuing with First Nations collectives taking larger equity positions in major projects. Moreover, we also see First Nations acting in unison to take an increasingly proactive role in the development process – eventually approaching the government with their own land management plans that are designed to cooperatively control land use for large linear projects.

Clean Energy Preference

The clean energy industry has traditionally enjoyed more success in partnering with First Nations than any other industry. One reason for this is that clean energy development, when executed properly, offers First Nations an opportunity to pursue economic development without the environmental risks associated with other industries. This means that clean energy projects can often be developed in a manner consistent with a Nation’s core traditional community values. Because of this, we believe that First Nations will continue to favour clean energy projects as an avenue for economic development.

Access to Capital

First Nations’ access to capital is expanding at an unprecedented rate with many Nations being approached by foreign and domestic investors eager for investment opportunities. Moreover, many First Nations are accumulating diverse own-source revenue streams which can be charged as security outside of the Indian Act restrictions, further expanding access to capital. We predict that this trend will continue and will provide greater opportunity for First Nations to take a leadership role in development projects.

Tax Efficiency

Pursuant to recent amendments to the Tax Act, any income from Electricity Purchase Agreements (EPA) earned by a corporation on partnership that is at least 90% owned by a “public body performing the function of government” is exempt from taxation, irrespective of when the project is located. Most First Nations fit the definition of “public body”, so long as they pass a taxation bylaw and a governance bylaw – which can be done very easily. We believe that this favourable tax treatment for First Nations can be seen as a policy initiative by the federal government to increase First Nations’ investment in clean energy projects and will help to facilitate such investment.

Industry Consolidation

There is an on going need in the clean energy industry for stalled projects from previous calls to be infused with capital and regulatory influence, and for older projects with expiring EPAs to be acquired in the hope of extending their EPAs. As has been discussed, First Nations increasingly have the access to capital and regulatory influence to play a leadership role in these areas. We foresee increased investments by First Nations in stalled projects and those with expiring EPAs.

Targeted Opportunities

BC Hydro’s decreased reliance on private industry proponents (for example, see the most recent Integrated Resource Plan and the stated goal of developing Site C) means that they will be forced to address First Nations consultation and accommodation directly. BC Hydro’s most recent attempt at this, the Northwest Transmission Line, has faced heavy criticism for being overly generous. We see BC Hydro seeking new and creative ways to address First Nation’s consultation in an era of financial austerity. We predict that this state of affairs will force BC Hydro over the mid-term to create First Nation business and development opportunities as a way of satisfying their consultation and accommodation obligations. We would not be surprised to see First Nations-specific power calls or direct awarding of EPAs and licences to First Nations.

Conclusions

We see a near-term future where the combination of regulatory influence and economic strength will provide unprecedented opportunity for First Nations to become leaders in the clean energy industry by investing in new and existing clean energy projects. This represents a significant shift in the energy industry status quo and clearly benefits First Nations. However, the news is not all bad for the industry. For the dinosaurs that fail to acknowledge these changes, the clean energy industry will be an increasingly difficult area to operate. For forward thinking developers that are quick to embrace a model whereby they help facilitate First Nation-led development, there should continue to be substantial opportunities to thrive in the coming years.