The Winds of Change (Part 7): Paying the Piper: New Newfoundland and Labrador Fiscal Framework expects billions in revenues from wind to hydrogen projects

By Dave Randell, G. John Samms, and Stuart Wallace

With the deadline for bids on crown lands available for wind energy projects extended to noon on March 23^rd, the latest development in our Winds of Change series looks at the recently announced fiscal framework of Wind-Hydrogen projects in Newfoundland & Labrador

On February 23, 2023, the Newfoundland and Labrador Department of Industry, Energy and Technology announced further information on the fiscal framework of Wind-Hydrogen projects. This article sets out to provide a basic outline the specifics of the framework.

Principles

Predictability and transparency are the intended principles on which the fiscal framework has been developed. This is intended allow investors to make informed decisions. The framework attempts to balance the risk of investment with the use of provincial resources.

Payment Components

For a singular project over a 30-year period, the government of Newfoundland and Labrador expects $3.5B in taxes, royalties and fees.[1]

Payments will occur early in the project, and throughout the operation phase. These payments can be broken into three components: Land, Wind, and Water.

Land

• Crown Land Reserve Fee: Annual charge of 3.5% of the market value of reserved lands. Payments begin upon award of exclusive right to pursue projects on lands.
• Crown Land Lease Fee: Annual charge of 7% of market value of land. Payments begin upon issuance of Crown Land lease.

Wind

• Wind Electricity Tax: Annual charge of $4,000 per megawatt on installed capacity. Payments begin when the turbines are “in-service”, and applicable to all wind-hydrogen projects (≥ 5 megawatts) producing electricity for the purposes of producing hydrogen.

Water

• Water Use Fee: Annual charge of $500 per 1000m³ of water licensed and used, and $50 per 1000m³ of water licensed but not used. Payments begin when permit is issued, and are applicable to all hydrogen facilities.
• Water Royalty: Payable based on the calculated residual value of the water. Rates are tiered and linked to cost recovery. These terms can be modified via agreements with the Province. Further details about calculation in document.
  • Tier 1: Rate of 10% applied after 1x cost recovery.
  • Tier 2: Rate of 20% applied after 2x cost recovery.
  • Tier 3: Rate of 25% applied after 3x cost recovery.

Taxes

Taxes will be applicable to all wind projects producing electricity for the purposes of producing hydrogen. For more information on how Atlantic Canada is poised to benefit from clean energy tax credits, check out part 5 of this series.

Bids

Deadline for submitting bids has been extended to March 23, 2023.

Successful Bidders will be awarded the exclusive right to pursue their project through the Crown Lands and Environmental Assessment processes.

This update is intended for general information only. If you have any questions on the above we would invite you to contact the authors or any other member of our Energy Group.

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[1] Using a base case of a 1000 MW Windfarm and a 500 MW Hydrogen (Ammonia) Facility with capital costs of $3.5 billion with an annual production of 60k tonnes of hydrogen converted to 344k tonnes of ammonia.