Data centre investment in Canada: key considerations for investors

 
While the global data centre market is currently dominated by the United States, constraints on the availability of sufficient electricity and land to accommodate data centre projects has investors looking to new geographies. Given its relative low energy prices, access to renewable and clean energy, and a predominantly cool climate—as well as favourable emerging federal and provincial policies—Canada is well positioned to capitalize on the growing demand for data centres. In this article, we discuss some key public policy initiatives and regulatory and commercial considerations for investors seeking to invest in Canadian data centre projects.

Public policy

Public policy will be a key driver in attracting data centre investments to Canada, and recent policy developments in Alberta and federally point towards a growing interest in data centre investment.

Alberta

In 2024, the Alberta government released its Artificial Intelligence Data Centres Strategy, a road map for attracting investment in massive data centres which is founded on three core pillars: power capacity, sustainable cooling and economic growth. To achieve its goals, Alberta intends to undertake a series of key initiatives, including a comprehensive review of regulatory timelines associated with AI data centre development to provide greater investor certainty and reduce construction delays. Alberta has also established an AI data centre concierge program, which aims to streamline partnerships between investors, operators and local organizations.

Federal

In December 2024, the federal government announced its Canadian Sovereign AI Compute Strategy. Amongst other things, the Strategy sets out the government’s intention to invest up to $700 million in leveraging investments in new and expanded data centres through the AI Compute Challenge. Additionally, the government announced in its 2024 fall economic statement that it is developing a program to provide up to $15 billion in aggregate loan and equity investments for AI data centre projects that receive investments from Canadian pension funds. To access these incentives, pension funds will have to invest $2 of their own capital for every $1 of government money accessed, as well as be significant shareholders in the project.

While the impending federal election may raise some doubts regarding the federal initiatives, provincial and federal momentum to support the build-out of data centres continues to pick up speed.

Access to power

As demand for data centres grows, so does the need for steady and reliable electricity. Data centres require a lot of power—sometimes more than entire communities or cities. Building the necessary infrastructure required to support them, whether by connecting to the grid or by building a dedicated power source, presents a significant challenge—and possible opportunity—for investors.  

Grid interconnection

Grid interconnection processes vary across jurisdictions, but generally follow a similar multi-step approach. The key step for investors is obtaining regulatory approvals to expand or modify the grid for a data centre connection, while ensuring that benefits, costs and risks are fairly allocated between the project and other grid customers. Investors should remember that governments and regulators must balance attracting data centre investments with protecting ratepayers from bearing the significant costs of infrastructure upgrades required to accommodate a data centre’s intense demand.

Bring-your-own-power

An alternative to grid connection is “bring-your-own” power (BYOP), where data centres build or acquire their own on-site generation facilities. Key considerations for a BYOP solution include the type of electricity (gas, wind, solar, or nuclear) and the regulatory requirements for direct power. These requirements encompass property ownership (the generation facility must typically be on property owned or leased by the entity using the electricity), regulatory exemptions for owning and operating electricity wires to deliver power to the data centre, and obtaining a license to generate and sell electricity.  

Power purchase agreements

Virtual power purchase agreements (PPAs) have the potential to play an increasingly important role in data centre investment.

In Canada, PPAs have the potential to be a tool to hedge against future power price volatility, providing revenue certainty in volatile energy markets. In addition, PPAs for renewable power allow data centre operators to acquire environmental attributes to meet greenhouse gas emission targets.

Under a PPA, the buyer will typically acquire the environmental attributes associated with the contracted electricity. In some cases, these environmental attributes can be used for compliance with regulatory regimes, and there may also be a voluntary market for the environmental attributes in jurisdictions that do not have regulatory greenhouse gas reduction regimes. In some areas, renewable energy from PPAs can be certified as renewable energy credits (RECs), which can help data centres comply with renewable portfolio standards (RPS) or be sold to third parties.

Commercial and due diligence considerations

Investing in data centres requires due diligence by investors at a depth that will depend on the structure and nature of their investment in the project. Investors should ask questions necessary to understand the nature of the data centre being bought or built, beginning with the data centre’s operator: are you investing in a data centre being built to spec for a single customer, a major co-location centre that caters to multiple tenants, or a data centre built specifically for artificial intelligence deep learning? What sort of power supply will the data centre have, and how will access to that power supply impact costs, profitability and regulatory compliance? What are the operator’s arrangements with upstream suppliers and their customers, and what financial, legal and regulatory commitments have they secured from their customers?

For more about due diligence considerations for investors seeking entry into the data centre market, consult our due diligence checklist for dealmakers.

Competition and foreign investment considerations

Data centre developers and investors should bear in mind that data centre projects may be flagged for review under Canadian competition and foreign investment law. Under the Competition Act, acquisition transactions are subject to mandatory review requirements if they meet certain financial thresholds, and given the value of data centres it is likely that most transactions would be subject to reporting requirements. Under the Investment Canada Act, acquisitions of data centres by non-Canadian entities may be subject to mandatory pre-closing approval requirements or post-closing filings, with some acquisitions subject to national security reviews as well. Data centre investors should also be aware of a unique Canadian regulatory framework related to the acquisition of certain real property by foreign entities. Federal legislation authorizes the provinces and territories to restrict the acquisition of property by non-Canadian citizens, with several provinces, including Alberta, Manitoba and Saskatchewan, limiting the aggregate purchase of agricultural land by foreign investors. Foreign data centre investors should be aware of provincial legislation restricting ownership and plan accordingly.