Economic and Strategic Assessment Framework for New Data Centres

To do this, the Ministry of Economic Development, Job Creation and Trade has identified three pillars that would assess proposed data centres based on their economic and strategic value to the province, communities, and Ontarians that could help inform decisions regarding data centre connection approvals. The Ministry of Energy and Mines is also proposing to establish a rate class for large new data centres (e.g., greater than 1 MW), to ensure growth in the sector does not increase electricity bills for existing customers.

For decades, data centres have served as the quiet digital backbone of everyday life, acting as a repository for the information and digital services required when sending an email, making financial transactions, storing photos or accessing a website.

With the expansion of Artificial Intelligence (AI), machine learning and cloud computing, Ontario is experiencing rapid growth in data centre development due to its clean and reliable electricity system, ample land space, cool climate and skilled workforce.

Ontario has an opportunity to meet this moment and leverage new data centre builds and the community investments they bring to create a modern innovation economy with cutting-edge infrastructure.

To ensure responsible data centre growth, the government introduced legislative amendments to the Electricity Act, 1998 that provide the Lieutenant Governor in Council the authority to set out in regulation requirements that data centres covered by the regulation must meet before connecting or re-connecting to the electricity grid. 

Data centres that do not meet these requirements would not be able to connect (or re-connect) to the electricity grid. The province is considering drafting a proposed regulation that, if approved, would require new large data centres  to obtain the approval of the government to connect or reconnect to the electricity grid. 

To guide such approvals and attract the best data centre investments that drive economic growth, ensure Canadians’ data remains in Canada and deliver significant and meaningful benefits to local communities, Ontario is proposing a Data Centre Playbook.

As part of the Playbook, Ontario is proposing that proposed data centres be assessed to ensure the responsible growth of the sector that emphasizes the economy, digital sovereignty, community benefits, security and the environment.

Proposal to Develop a Three-Pillar Strategic Priority Assessment

Ontario is proposing to assess economic development, digital sovereignty, community benefits, and environmental considerations in relation to data centre proposals against three strategic pillars. Ontario is seeking the public’s input on whether these pillars reflect the right economic development priorities. Assessing proposed data centres against these pillars could form part of the broader proposed regulatory data centre connection process requiring connection approval by the government, alongside other considerations related to electricity system reliability, technical feasibility and cost responsibility. 

A brief description of each pillar is provided below:

Pillar 1: Advance Economic Development

Helps evaluate whether proposed data centres would create and support durable, high-value benefits for Ontario’s economy, including high-quality jobs, investment and new sources of revenue for the province and municipalities, support for Ontario and Canada’s domestic supply chains where feasible, and local supplier participation.It also explores whether the proposed data centre would help Ontario businesses be more productive and innovative. 

Pillar 2: Protect Data Security and Digital Sovereignty 

Helps evaluate whether proposed data centres advance Ontario’s and/or Canada’s control over high sensitivity and critical data, as well as critical digital infrastructure, including ensuring alignment with policies regarding digital sovereignty, safeguarding Ontario’s security and advancing cybersecurity objectives, a preference for Canadian-owned and operated data centres, and alignment where possible with related federal objectives regarding data sovereignty and residency. 

Pillar 3: Invest in Communities and Earn Public Trust

Helps evaluate the extent to which proposed investments benefit host communities, including through significant and meaningful investment and benefits to local communities, local labour participation, training, apprenticeships and workforce pathways, and seeking local support and public confidence through engagement.

It also explores whether the proposed data centre would have minimal impacts on the technical and fiscal capacity of host communities and their utilities, and minimize environmental impacts through the use of modern data centre technology, such as closed-loop cooling to limit water use.

After reviewing the pillars and Ontario’s proposed approach, the government is encouraging the public to consider the following questions:

1. What are your thoughts on the pillars that are meant to capture how Ontario should assess the economic and strategic value of data centre proposals? 
2. How can data centres demonstrate alignment with each of the proposed pillars?
3. Is there anything that is missing or that should be emphasised within the pillars?
4. Are there particular pillars that should be given more priority than others? 
    

Proposal to Establish a Separate Rate Class for New Data Centres 

The scale and pace of data centre growth can create unique electricity system planning risk and cost pressures that may not be adequately addressed through the existing cost recovery framework. The government is therefore exploring amendments to Ontario Regulation 429/04 under the Electricity Act, 1998 that would establish a new separate rate Class (e.g., Class C) for new data centres above a specific demand threshold (e.g., 1 MW). Facilities in this rate class would not be eligible to participate in the Industrial Conservation Initiative (ICI), a demand response program for large electricity customers. 

Currently, data centre accounts are charged for the Global Adjustment (GA) component of electricity costs as either Class A or Class B customers. Class A customers participate in the ICI and are charged GA based on their contribution to system-wide demand during the top five peak demand hours of the year. Class B customers are charged GA volumetrically based on their electricity consumption. ICI participants, (i.e., Class A), are frequently able to lower their overall cost of electricity significantly by reducing consumption during peak demand times.

The GA is a charge that recovers costs related to contracts with electricity generators, regulated rates for electricity generation and the cost of electricity conservation programs.

The proposal would apply to new data centres (i.e., those not already participating in ICI). Data centres currently in operation would continue to be charged under the existing electricity rate framework, as either Class A or B customers. These data centres would be required to attest to not mining cryptocurrency to be eligible for Class A. 

MEM estimates that there is a demand profile of approximately 100 to 200 MWs attributed to centres currently participating in ICI. 
In addition, there are a significant number of data centres that have applied for connections. MEM estimates these proposals could total more than 10,000 MW cumulatively. For comparison, Ontario’s recent peak demand has been approximately 25,000 MW.
The proposed new rate class would be for GA billing purposes and would be separate from the proposed regulatory data centre connection process requiring connection approval by the Minister of Energy and Mines. 

As part of the proposal, Ontario is seeking general feedback from stakeholders, as well as specific input on the following questions:

1. What electricity costs or risks associated with data centre demand should be reflected in a new rate class for data centres?
2. How should charges under a new data centre rate class be structured?
3. What criteria, such as customer type, service criticality, ownership or load characteristics, would be most appropriate for determining eligibility for an exemption from the proposed new rate class?

Local Distribution Company (LDC) Focused Questions

1. What billing, settlement, metering or implementation changes would be required to establish and administer a new rate class for data centres? 
2. If exemptions from the proposed new rate class are pursued, how feasible is it to clearly identify and verify the operational purpose of data centres seeking an exemption?
    

Customer Focused Question

What are the anticipated operational and financial impacts on data centres of establishing a new electricity rate class and prohibiting participation in ICI?