Powering Up: Grid Access, Strategic Screening And Canada’s Emerging Data Centre Regimes

Canada is emerging as an important destination for data centre investment, driven by the rapid growth of artificial intelligence and cloud computing. In June 2026, the federal government released its national AI strategy, “AI for All”, which builds on more than $2 billion in existing federal investments and sets a target of increasing AI adoption among Canadian businesses from approximately 12 per cent to 60 per cent by 2034. Achieving those ambitions depends in part on expanded domestic data centre capacity. But the scale of investment required to deliver that capacity places significant demands on electricity grids, water resources and host communities.

Across Canada, governments are introducing new rules to manage the significant resource demands of data centres. Access to scarce electricity capacity is increasingly being conditioned on who pays for the required infrastructure, how much economic and strategic value a project creates and, in some jurisdictions, ownership, data residency and community benefits. For developers, investors and lenders, power strategy is therefore becoming a threshold project-development and financing issue.

The policy tension is not unique to Canada. Rapid data centre deployment in the United States has brought the energy and water intensity of these facilities into sharper focus and, in some markets, led to moratoria, revised zoning requirements and heightened regulatory scrutiny. Canada is now confronting similar issues: it needs additional data centre capacity to support its digital economy, artificial intelligence ambitions and data sovereignty objectives, while addressing legitimate concerns about electricity supply, water use, community impacts and the fair allocation of infrastructure costs.

Against this backdrop, the federal government and several provinces have introduced or begun advancing data centre policy frameworks, both voluntary and binding. This bulletin compares Canada’s Responsible Data Centre Development Principles (the “Federal Principles”) with the approaches emerging in Alberta, British Columbia, Ontario, Québec, Saskatchewan and New Brunswick, and identifies the differences that may affect project viability, cost, timing, structure and financing.

Voluntary Federal Principles

Released on September 3, 2026, the Federal Principles are voluntary and supported by a broad cross section of Canada’s data centre, cloud, artificial intelligence and technology sectors. Importantly, they do not create a new federal approval regime or replace provincial, territorial, municipal or Indigenous regulatory processes. Instead, the federal government describes them as a nationally recognized baseline intended to complement existing processes and provide greater clarity to communities and investors.

The Federal Principles set out the following five expectations for responsible data centre development in Canada:

1. Lasting local benefits: The Principles call for data centre investments to create clear and lasting benefits for host communities and Indigenous rights holders, supported by early engagement to identify benefits that reflect community priorities.
2. No cost-shifting: Data centre growth should not shift project-driven electricity system costs to households and existing businesses. The Principles contemplate proponents bearing the costs of connecting and serving their projects, including directly attributable generation, transmission, substations and grid upgrades, proportionate to project scale and impact.
3. Minimizing water use and environmental impacts: Data centres are expected to minimize freshwater consumption and protect local water supplies, taking account of local conditions and resource constraints, with priority given to sustainable, low-impact technologies and practices, including closed-loop or high-efficiency water technologies.
4. Transparency about local impacts: Proponents are expected to engage early and transparently with affected local governments and Indigenous communities, respect local approval processes and provide clear, project-appropriate and independently verifiable information about expected local impacts. Material commitments should be tracked and reported over time.
5. Strategic value to Canada: The Principles call for data centre investments to create clear and lasting benefits for Canada and strengthen Canada’s long-term digital resilience, security and compute capacity. Facilities supporting sensitive data, public services and critical infrastructure and systems should meet appropriate requirements for Canadian legal protection, cybersecurity, continuity of service and reliable Canadian access.

How the Provincial Approaches Differ

Although policy objectives are beginning to converge, the provincial approaches differ materially in legal status, grid access, strategic screening, pricing and implementation. The principal distinctions are summarized below and then discussed in more detail.

Status and Implementation

Alberta’s Data Centre Regulation, in force since June 2026, applies to large grid-connected data centres seeking 75 MW or more of demand transmission service and directs the Alberta Electric System Operator (AESO) to prioritize projects paired with dedicated new generation or storage. Alberta has also established a computing equipment levy for qualifying large data centres, with rates of up to 2 per cent depending on the project’s power solution.

British Columbia has amended the Utilities Commission Act to permit the province to depart from the existing first-come, first-served electricity service model and limit capacity available for specified purposes, including data centre facilities. The Data Centre Facility and Hydrogen Production Facility Power Supply Regulation (the “Supply Regulation”), in force since February 1, 2026, establishes separate aggregate capacity limits for conventional and AI data centres over an initial two-year period, followed by reduced limits for a subsequent year.

Ontario has taken a staged legislative and policy approach. Amendments to the Electricity Act, 1998 authorize the Lieutenant Governor in Council to establish requirements that prescribed data centres must meet before connecting or reconnecting to the grid. Ontario has proposed using this authority for a government approval process informed by technical connection requirements and an economic and strategic assessment. Consultation on the proposed Data Centre Playbook and assessment framework closed on September 12, 2026; the implementing regulation and final framework have not yet been released.

Québec requires government authorization for new projects and load additions requiring 5 MW or more, a requirement introduced in 2023 and reinforced by An Act to ensure the responsible governance of energy resources and to amend various legislative provisions (Bill 69), adopted in June 2025. Bill 69 consolidated the role of the Minister of Economy, Innovation and Energy in approving large-scale energy projects and expanded government control over electricity allocation. Hydro-Québec’s proposed data centre-specific tariff, which would approximately double the applicable large-power rate to approximately 13 ¢/kWh, and a revised tariff for cryptographic blockchain operations of 19.5 ¢/kWh, both remain subject to approval by the Québec Energy Board (Régie de l’énergie). Several data centre operators have also challenged before the Québec Superior Court a separate charge introduced by Hydro-Québec in 2025 for underutilized reserved capacity under its large-power rate contracts.

Saskatchewan released its Data Centre Framework on August 27, 2026. The framework sets out six principles for assessing future projects rather than creating a new legislative approval regime. It establishes a centralized provincial intake process while preserving municipal planning and development authority and existing environmental assessment requirements.

New Brunswick’s proposed policy framework remains under consultation until October 2, 2026. It would establish a common approach across provincial departments and agencies for evaluating, prioritizing and approving data centre developments. The province has indicated that implementation may include legislative changes and new enforcement mechanisms, but the framework is not yet operative.

Grid Access

Alberta’s interim Phase 1 process capped new large-load grid connections at 1,200 MW, which is now fully allocated. The AESO is developing Phase 2 as the longer-term framework for large-load connections, planning, operations, tariffs and reliability. Projects paired with dedicated new generation or storage are expected to continue receiving priority, and a bridging approach may permit limited earlier connection where reliability-protection conditions, including curtailment obligations, are satisfied.

British Columbia subjects AI and conventional data centre projects requiring 10 MW or more to a competitive process for limited electricity allocations under the Supply Regulation. Under the Call for Demand for Emerging Industries, eligible AI and conventional data centre projects must be located within BC Hydro’s service area and must either be new facilities not yet interconnected to the BC Hydro grid or must involve incremental capacity or a change in end use at an existing facility. Only selected projects may advance through BC Hydro’s interconnection process.

Ontario proposes to combine technical connection review with government approval informed by an economic and strategic assessment. The province has not finalized which projects will be covered. It has also proposed a separate electricity rate class for large new data centres, using a threshold above 1 MW as an example, and would exclude facilities in that class from the Industrial Conservation Initiative while generally leaving existing data centres under the current Class A or Class B framework.

In Québec, new projects and load additions requiring 5 MW or more must obtain government authorization before being connected by Hydro-Québec or another electricity distributor. Applications are not assessed on a first-come, first-served basis but are instead reviewed comparatively by the Minister of Economy, Innovation and Energy and Hydro-Québec, with priority given to projects that demonstrate the most efficient and beneficial use of each megawatt allocated, taking account of grid capacity and the economic, social and environmental benefits of each project. Applications may be refused, deferred or conditionally approved, with final authorization contingent on the satisfaction of specified conditions.

Saskatchewan requires new proponents to supply their own power. The province presents self-supply as a means of preventing new projects from placing additional pressure on Saskatchewan’s electricity system or displacing interprovincial export capacity. The framework does not prescribe a particular generation technology or specify how self-supply will interact with SaskPower connection, backup service or system reliability requirements.

New Brunswick proposes that each new project pay the costs it creates and not result in higher electricity rates for existing customers. The proposed framework does not yet establish a connection threshold, capacity-allocation mechanism or detailed tariff, and the respective roles of the provincial government and NB Power remain to be developed through implementation.

Strategic Screening and Ownership Considerations

Alberta does not identify Canadian ownership or data sovereignty as express connection criteria. Its framework emphasizes grid reliability, project-funded supply and the contribution of new generation or storage. The computing equipment levy, which applies at rates of up to 2% of equipment value, with lower rates available to projects that provide their own power solutions, also creates a fiscal consideration for project structure and power procurement.

British Columbia assesses projects against criteria established by BC Hydro, including cost-effectiveness, economic development and community benefits, data sovereignty, First Nations benefits and environmental benefits. The regime expressly permits departure from first-come, first-served service so that strategic merits, rather than queue position alone, can influence access to electricity.

Ontario’s proposed framework is organized around three pillars: advancing economic development, protecting data security and digital sovereignty, and investing in communities and earning public trust. Considerations include high-quality employment, domestic supply chains, local suppliers, cybersecurity, data residency, a preference for Canadian-owned and operated facilities, community investment, workforce development, local support and municipal and environmental impacts.

Québec assesses large-load projects based on grid impacts, economic, social and environmental benefits, energy efficiency, optimization of the energy mix, waste heat recovery and project maturity. A preauthorization may require evidence of a complete financing structure and satisfaction of specified development milestones, reflecting a more selective approach to directing finite electricity resources to projects considered to deliver the greatest overall benefit.

Saskatchewan’s six principles focus on Canadian ownership, Canadian data and artificial intelligence sovereignty, Saskatchewan employment and partnerships, industry experience, self-supplied power and centralized provincial intake. The province also encourages Indigenous partnerships, participation or equity. The framework does not establish a minimum Canadian ownership threshold or explain how the ownership preference will be applied, which may leave material structuring questions for foreign sponsors and joint ventures.

New Brunswick’s proposed framework would assess projects against five areas: ratepayer protection, sustainable development, economic benefits, long-term impact, and community engagement and benefits. Projects would be expected to be technically and financially sound, minimize impacts on water, land, infrastructure and the environment, and produce measurable benefits through investment, employment, training, innovation and opportunities for local and Indigenous businesses. The proposal requires meaningful engagement with local governments, First Nations and communities. It also provides that financial support, incentives, land transactions or asset transfers below fair market value would not be available unless expressly authorized by government policy. Canadian ownership is not identified as an express criterion.

Implications for Project Development and Financing

Policy objectives are converging, but the regimes are not uniform. Federal and provincial approaches increasingly emphasize project-driven electricity costs, protection of existing ratepayers, lasting local benefits, responsible water and environmental management and early engagement. Their legal status and precise requirements differ materially by jurisdiction, and alignment with the Federal Principles will not necessarily satisfy the applicable provincial connection, approval or assessment process.

Power strategy is now a threshold development issue. Grid availability can determine whether a project proceeds, at what scale and on what timetable. Sponsors should test grid capacity, generation, storage and demand flexibility options before fixing site, phasing and procurement assumptions. Where self-supply or new supply is required or preferred, the generation solution may need to be developed and financed as part of the data centre project.

Project structure and strategic benefits may affect assessment. Technical feasibility and creditworthiness may no longer be enough. Ownership, data residency, digital sovereignty, local procurement, Indigenous participation, economic benefits and project readiness may influence how a project is assessed. Sponsors should consider these matters when structuring consortium arrangements, investment participation, procurement commitments and financing plans and should be prepared to substantiate broader strategic benefits in jurisdictions using comparative or merit-based screening.

Cost allocation will shape bankability. Sponsors and lenders should assess responsibility for connection costs, grid upgrades, generation and storage, applicable levies and separate rate treatment. These costs, together with timing and completion risk for related power infrastructure, should be reflected in budgets, contingencies, conditions precedent, financing availability periods, completion tests and contractual risk allocation.

Water use and community impacts belong at the front end. Water availability, cooling technology, environmental impacts and community benefits should be addressed during site selection and project design. Ontario expressly proposes to prioritize closed-loop cooling, while the Federal Principles and other provincial approaches emphasize minimizing water use and environmental impacts.

Early engagement can influence project design and schedule. Engagement with host communities, local governments and Indigenous rights holders is a consistent policy expectation, although its source and legal effect vary. Commitments relating to jobs, procurement, infrastructure, partnerships or other benefits should be developed early and translated into measurable obligations that can be diligenced and monitored.

Next Steps

Several near-term developments will shape the policy landscape. Ontario will consider consultation feedback as it develops its Data Centre Playbook and related framework following the September 12, 2026 close of consultation. New Brunswick’s consultation closes on October 2, 2026. In British Columbia, BC Hydro is evaluating applications under its first competitive electricity-allocation process, with successful applicants expected to be identified by the end of September 2026; a further competitive process is anticipated for the period from February 1, 2028 to February 1, 2029, when the aggregate capacity limits under the Supply Regulation will be reduced by half.

In Alberta, the AESO is developing Phase 2 as the permanent large-load connection framework following full allocation of the 1,200 MW available under Phase 1. Québec continues to apply its government authorization process to projects requiring 5 MW or more while Hydro-Québec’s proposed data-centre-specific tariff remains before the Régie de l’énergie. Saskatchewan has established a centralized provincial process and reported more than 30 applications in the queue when it released the framework.

Proponents should assess projects against both the Federal Principles and the applicable provincial rules, policies and proposals as they continue to evolve. Developers that address power supply and connection risk, strategic benefits, project-driven electricity costs, ownership and sovereignty considerations, water use, Indigenous and community engagement and project structure early will be better positioned to compete for scarce capacity and move projects toward financing and execution.

McMillan will continue to monitor developments at the federal and provincial levels and publish further guidance as details emerge.¹

Footnote

1. This bulletin reflects public information available as of September 14, 2026.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025