MEREDITH: Harnessing our electricity superpower means being both the most affordable and the most fiscally responsible investor in the G7

The following essay is part of a collaboration between MBP Intelligence and New Economy Canada, examining Canada's electricity strategy and the future of electrification. In the next few weeks, both Tyler Meredith and Ben Woodfinden will be publishing multi-part essays on this question (the following is Part I). This follows a recent special edition of the MBP Intelligence Briefing with Merran Smith, Andrew Leach, Michael Powell. Ben Woodfinden’s Part I essay is here, Part II here. Tyler Meredith's Part I is here. Part III from Tyler will follow next week.

The existing federal toolkit covers less than a tenth of the roughly $800-billion gap Canada needs to close by 2050, and how Ottawa closes the rest will decide whether Canada keeps its rare combination of cheap power and cheap debt.

Key Takeaways:

• Meeting the federal government’s own electrification ambitions requires roughly $54 billion a year through 2050, against a realistic current baseline closer to $22 to $24 billion — leaving an annual gap of about $30 to $32 billion, or roughly three-quarters of a trillion dollars over 25 years.
• The existing federal toolkit (tax credits, the Infrastructure Bank, the Canada Growth Fund and the new First and Last Mile Fund) is on track to fill only $60 to $70 billion of that gap, and most of it expires in 2034-35 with nothing yet scheduled to replace it.
• The provinces are not as fiscally stretched as the Ottawa consensus assumes: on a national-accounts basis the subnational sector as a whole has kept its interest burden flat and stayed near balance since 2019, even as the federal deficit widened.
• Canada currently holds a rare combination of the lowest net debt-to-GDP and among the lowest electricity prices in the G7 — but financing the full build-out through higher prices alone or federal borrowing alone would each erode one advantage or the other.
• The choice of financing model over the next few years, more than the scale of the build-out itself, will determine whether Canada can remain both the cheapest and the most fiscally credible place to build electricity in the developed world.

In my last essay as part of this series with New Economy Canada, I argued that for Canada to take charge of the massive economic and environmental opportunity in electrifying our economy we would need the federal government to play an active and strategic role as an investor. To be clear, this was a call not for chequebook federalism in which the federal government simply cost-shares every major deal that fancy people and hard-bargaining Premiers put in front of Ottawa. But rather, it was a call for using the federal balance sheet ambitiously but in a very targeted way to help support the industrial, climate, technological and geo-strategic pivots we as a country are in the process of making and for which electricity is an absolutely essential input. 

Having defined previously the what and why behind a national electricity strategy, I turn in this second instalment to what should guide the strategy's macroeconomic objectives. In my forthcoming Part III I will address how and how much the federal fiscal framework should become entangled in this highly important but also politically fraught area of largely provincial jurisdiction. 

The Three-Quarter-Trillion Gap 

As previously noted, the consultation paper estimates the cost to meet a buildout that will double Canada's electricity production by 2050 at well in excess of a trillion dollars. Federal projections of about $1 trillion, derived from the Canada Energy Regulator's Canada's Energy Future 2026, exclude distribution entirely, and exclude transmission other than lines that connect new generation or cross a provincial border. Distribution is likely where a very large share of the electrification demand will arise, particularly if provinces are not successful in fully escaping the desire to compete for data centres and other large industrial consumption and eventually are forced to relent on expectations of “bring your own power” policies. Other analysis from the since-renamed Conference Board of Canada pegs the full cost at closer to $2 trillion. 

For the sake of argument, let's assume both are right and a number a little closer to Ottawa's projection is realistic and therefore $1.35 trillion is a good planning forecast. Over twenty-five years that is $54 billion a year. 

Of that number, what does current federal and provincial policy architecture, when layered on top of known private sector investment, deliver? Here the figure you choose matters more than it first looks. Statistics Canada's capital expenditure survey puts investment across the whole utilities sector at roughly $46 billion in 2025, but that folds in gas distribution and water and sewage, and it captures a single year in which spending happened to spike. The electricity-only figure the Energy Fact Book reports for that year is about $34 billion. Take the longer view, though, and $34 billion looks like a recent peak rather than a sustained rate. Over the full decade from 2015 to 2024, utilities investment in Statistics Canada's long capital-stock series averaged about $32 billion a year in the dollars of the day and roughly $29 billion in constant terms, of which electricity is around three-quarters. On an electricity-only basis, then, the honest decade average is nearer $24 billion in current dollars, and about $22 billion once inflation is stripped out. Adjusted for rising prices, the system has not so much been spending more each year as running hard to hold its place, with a real jump only in the last two years. 

Take that decade average of about $22 billion as the honest baseline rather than the 2024 peak, and the remaining gap is closer to $32 billion a year, or roughly $800 billion between now and 2050. On the more directly comparable current-dollar average of $24 billion the gap is nearer $30 billion a year and about $750 billion, so call it three-quarters of a trillion dollars either way. If the Conference Board's higher-end estimate is to be believed (and recent experience with infrastructure construction in Canada suggests a persistent problem with cost overruns, as any Toronto transit commuter will know well), then the gap is more like $46 billion a year. At this target flow of funds, it would mean roughly tripling what the country has actually been spending and holding it there for a generation. 

You can clearly understand the mammoth undertaking that is required to meet PM Carney's goal. But stretch goals are useful, especially at a critical inflection point in Canadian economic history like the one we are now living through. 

Thought of another way, it is worth pausing to underline how much has already shifted as we move up the investment curve, even with more than half the distance still to go. Provinces and their ratepayers put roughly $450 billion into electricity over the previous 25 years, an average of $18 billion a year. The recent decade has run about 15 percent higher than that in real dollar terms, and in 2024 alone was about $34 billion as valued at 2017 constant prices ($44 billion in current prices). But the trick is we need to keep sustaining that 2024 level of investment, and then double it still. 

Baselining the federal toolkit that is just now starting 

Before we think about what else is required and how much should be apportioned to the federal government, it is important to emphasize that Ottawa already has been in this game for a while and its toolkit is just beginning to have impact. Thanks, yes, to Justin Trudeau's leadership in his last few years in office, the federal government has spent considerable time (albeit too much time) designing an array of financing instruments that electric utilities and investors will be able to make use of in the coming years. 

These include various investment tax credits for both electricity production and clean technology, as well as funding at the Canada Infrastructure Bank and Canada Growth Fund to help advance projects with low-cost and concessional federal investment alongside other partners. Since taking office last year, PM Carney has added the First and Last Mile Fund, which, although broader than just electrification, can help to provide grid interconnections in support of critical minerals development, and announced key support for various projects in B.C., Manitoba and Ontario that will help provide grid-scale clean electricity through nuclear, hydro and other renewable sources. 

The most striking example came just days ago. On August 17, standing in St. John's alongside the premiers of Newfoundland and Labrador and Quebec, the Prime Minister committed $10 billion in federal financing, including a federal guarantee of the new Gull Island project, toward a redevelopment and expansion of the Churchill Falls complex of projects, valued at close to $70 billion. It is the largest single federal move into electricity in the country's history, helps to finally retire the notorious 1969 Churchill Falls contract, and is the largest clean energy project in North American history, including 14,000 megawatts of hydro and wind power that will help improve electricity reliability and industrial capacity for Newfoundland and Labrador, Quebec and Canada's own mining and manufacturing ambitions. Ottawa's share of that headline number is about one in seven dollars of the project value, a number I will come back to later in this paper. 

Other programs such as the Canada Strong Fund and the Indigenous Loan Guarantee Program (also established under Trudeau and further expanded by Carney) can play a complementary role for additional sources of financing, but these are more general in nature and not tied specifically to electrification. For the analysis here I have excluded these from consideration since they will face significant competing demands across other asset classes. For the Clean Technology credits, which are also broader in scope, I have taken only the share likely attributable to generation and storage, stripping out such things as heat pumps and off-road vehicles since these address energy demand rather than production. 

Table 1. The federal electricity toolkit, as it stands 

Roughly 8 per cent of the $800 billion funding gap. Excludes the Canada Strong Fund and the Indigenous Loan Guarantee Program, neither of which is an electricity instrument. 

Given these inputs, what does the federal toolkit potentially deliver on its own before we turn our minds to any new measure that Ottawa might want to consider? 

By my very rough estimate, as laid out in Table 1, we are only on track currently to make a $60-70 billion dent in the roughly $800 billion gap with the existing federal toolkit. 

In some ways this is better news than I expected. About two-thirds of the toolkit, $41 to $47 billion, is real fiscal cost delivered through the tax system and grant programs. The remainder is financing on the government's balance sheet, which lowers the cost of capital, but is still repayable in some form to Ottawa. 

Considering that just a decade ago Ottawa was only sporadically present in a few electricity projects, and largely for regional economic development purposes (again Churchill Falls in previous incarnations being the optimal example), this is a massive shift in focus and attention at the federal level that is perhaps not much appreciated by either those in industry or those outside it. Justin Trudeau and Mark Carney, thanks in part to the heavy influence and at times controversial interventions of a common variable in Michael Sabia, have put Ottawa heavily into the power game. 

The second takeaway is far more worrying. Most of the tax credits outlined above expire in 2034-35. Over their own window they deliver something like $3.2 to $3.7 billion a year against a $32 billion annual gap. Over the eleven years to 2035 the whole toolkit covers under a fifth of the gap, which sounds respectable until you look at what comes next: about $450 billion of gap remaining over the following fourteen years with no federal instrument currently scheduled against it at all. 

And in a world where the federal government is facing even larger demands for new spending in defence, housing, public safety and other priorities, to name a few, the fiscal implications of this gap are daunting for Canada. 

Who actually has the balance sheet 

So how should we think about closing a gap this large, and who is actually positioned to do the spending? The reflex in Ottawa, and to be fair the reflex of most Premiers, is that the provinces are broke and the federal balance sheet is the only one with room. While there is some truth to the increased debt load at the provincial level, we should be very careful assuming provinces are without their own agency and capacity. 

Between 2019 and 2024 the federal deficit widened from about half a point of GDP to just over two points, and federal interest costs rose from 1.1 to 1.6 per cent of GDP as higher rates repriced the pandemic borrowing. Our subnational governments moved by less on both counts, holding their interest burden flat at 1.9 per cent and staying near balance. The rest of the picture is in Table 2. I use the national accounts here rather than the more familiar public accounts figures for a reason: public accounts stitch each government's own conventions together and are not strictly comparable, whereas the national accounts, prepared by Statistics Canada on a common template, are. The one thing to keep in mind is that the provincial line on this basis consolidates municipalities in with the provinces, which is the correct way to see the full subnational balance sheet but means the number is broader than a province's own budget. 

Table 2. Fiscal capacity on a national accounts basis, per cent of GDP 

National accounts (Government Finance Statistics) basis, calendar years. Provincial figures consolidate provincial, territorial and local governments. Federal and provincial lines include intergovernmental transfers and so do not net to a general-government total. Source: Finance Canada, Fiscal Reference Tables, November 2025, Tables 36 to 41; GDP from Statistics Canada Table 36-10-0222-01. 

The Parliamentary Budget Officer's 2024 fiscal sustainability analysis made the same point, concluding that over the next 75 years, based on current fiscal, economic and demographic trends, both federal and subnational governments have sustainable finances. The key here being both. There is sufficient fiscal capacity in Canada to enable net debt to GDP to fall gradually while keeping current levels of taxation and spending. 

None of this is to say the provinces are flush, because they are not, but the standard assumption that the provinces are stretched and the federal balance sheet is the only one with room does not really survive contact with reality, and it is worth being clear about that before we design anything that leans on that core assumption. 

The dispersion underneath the aggregate is where the intergovernmental politics actually lives. Alberta's net debt is 7.2 per cent of provincial GDP, the lowest in the federation by a factor of three, and it fell over the past five years. British Columbia's is 20.3 per cent, still the second lowest, but it grew 89 per cent in five years and is deteriorating faster than anyone's. Quebec at 38.3 and Ontario at 35.7 both improved their ratios while growing nominal debt by a fifth to a quarter. Note the awkward implications that produces: on the B.C. and Alberta intertie, the province with the cleaner balance sheet is Alberta, but the production opportunity for the line is on the B.C. side. Manitoba similarly faces a high debt burden and limited economic growth but has significant potential to produce more electricity if we can find the right framework to make that happen. 

Thinking about an “electricity anchor” to guide policy 

In Part I, I argued that the abundance of energy now substantially determines a jurisdiction's potential growth rate, and that this is why electricity has stopped being just an environmental file with economic implications and has become a growth file, a sovereignty file and an industrial file all at the same time. Let me take the corollary one step further than I did then. If the abundance of power sets a future trajectory for growth, then the price of that power is a macroeconomic variable in its own right, and it belongs in the same conversation as how we think about the “fiscal anchor” (the core metrics to be achieved, i.e. a target debt to GDP ratio or deficit level, or however a government chooses to express it) that is used to judge the credibility of a government's own performance against its spending and taxation objectives. 

In that respect, I think we need to consider what Canada would want its “electricity anchor” to be to help guide both the national objectives for electrification as well as to rationalize where and how federal and provincial governments work together. While every government may answer this differently, to start the national conversation, I would suggest there are two things that ought to guide our thinking: cost and price. Those sound like the same thing, but they aren't. 

In a world where most provinces have some form of Crown utility or Crown debt exposure to the production of electricity and given the significant fiscal expectation for support from Ottawa, the first variable we need to think about is fiscal capacity to absorb the cost of new energy production. We have the lowest net debt to GDP in the G7, an advantage we are leaning on heavily to finance Canada's defence and industrial pivot. Maintaining that fiscal credibility is what will keep bond vigilantes at bay, something most other G7 countries, the U.S. and U.K. most especially, are just beginning to feel. That challenge will only get harder as we transition to a global environment where the demand for debt is almost insatiable as A.I. hyperscalers, chip manufacturers and other large companies compete with sovereign governments for trillions in financing. 

Canada has to find a way to finance our investment ambitions in this era while remaining the “cleanest dirty shirt,” as they say. That fiscal advantage means the federal government benefits from borrowing rates that are about 1 percentage point lower than the U.S., something that will help us immensely in the long run if we can maintain that advantage even if rates and spending continue to rise. That advantage also flows through to provinces, households and companies who themselves compete for capital domestically and globally. 

The second variable is price. As reported by the International Energy Agency, Canada has the lowest-cost residential electricity in the G7 and the fourth lowest in the OECD; for industry we are second lowest in both. Canadian households pay roughly a third of what German, Italian or British households pay, and about two-thirds of the American rate. Thanks to our access to reliable and affordable clean energy sources we have a major built-in advantage for attracting industrial investment. In a world where tariffs and trade hopefully stabilize, that advantage helps to make us competitive for where companies might source a smelter, a fab or a data centre, and it helps to significantly offset other areas where we are less competitive. 

Table 3. The two advantages, and who else holds them 

Electricity prices are 2023 to 2025 averages, all taxes and network charges included. Net debt is general government, national accounts basis, 2024. Sources: IMF and IEA. 

Plot these two variables against one another and Canada sits alone in the bottom-left corner. We have both fiscal and energy affordability advantages that are the envy of the G7, even if our own domestic politics don't talk about it enough. 

Britain here is the warning sign, having both energy costs and debt loads that are punishing for new investment. 

Nobody has our combination of these two advantages, and we did not earn it through recent virtue so much as inherit it from a hydro and nuclear fleet built by earlier generations and from two decades of fiscal restraint that governments of both stripes can take some credit for. 

The part that should focus minds is this: building out our grids to the level of ambition we have is going to test those two advantages in ways we haven't seen in a generation, and depending on how we transition this period will matter significantly to how electrification actually helps or hinders our future growth. 

If we were to put the whole financing on the bill, it is likely that we will lose a large amount of our price advantage. By my own arithmetic, and I will say plainly that it is simply illustrative: $1.35 trillion of new capital at a levelized carrying charge of eight per cent, recovered across a system that has doubled in volume, works out to something like a one-third increase in prices in real terms compared to the average national price. Meanwhile the US Energy Information Administration's reference case has American real prices rising about five per cent to 2050. On this count, Canada would go from roughly a third cheaper than the United States to about a tenth cheaper. We would spend $1.35 trillion and arrive in 2050 having eliminated the single site-selection advantage the money was meant to exploit. 

If instead we try to carry it on the federal balance sheet, we risk blowing our other advantage. A federal share of thirty per cent of a $1.35 trillion build is $16 billion a year, every year, for twenty-five years, layered on top of the defence trajectory and an ageing population. That is roughly twice the annual cost of the national child care system, forever. 

So the goal is to remain best of both worlds. The reality will likely require some erosion of our relative advantages compared to other countries, but the goal should remain that we navigate this period as both the lowest cost and the most fiscally sustainable place to build the cleanest energy among developed-world economies. 

As I will show in the next and final instalment of this series, fusing these objectives into fiscal policy and federalism will require a different approach to how Ottawa is asked for financing and how it is deployed.