Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  The provincial government of British Columbia (BC) has created legislation specific to the development of geothermal resources, the Geothermal Resources Act (the “Act”), which provides that all such resources are property of the provincial government (not private landowners or owners of subsurface rights) and that the provincial government may dispose of geothermal resources pursuant to the Act.

  In the province of Nova Scotia, the geothermal resource is contemplated by the Nova Scotia Mineral Resources Act. Similar to BC, this act provides that all geothermal resources are owned by the provincial government. 

  Other provinces in Canada have not yet taken steps to clarify ownership of geothermal resources and the ownership of such resources will vary in each province from parcel to parcel of land depending on whether subsurface resources have been granted to the owner of the land when the land was settled or whether the subsurface resources were reserved to the province.

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  In BC, it is the Ministry of Energy and Mines of the BC Provincial Government (the “Ministry”) which grants access to geothermal resources. 

  All entities, including landowners, must apply to the Ministry in order to explore and exploit geothermal resources. In BC the Act creates two types of geothermal tenure, permits and leases.

  Both are issued by the Ministry.

  A permit is a time-limited, exclusive right to explore for geothermal resources and apply for well authorizations to drill wells within the permit location subject to set terms and conditions. Permits are issued for one year and may be renewed up to seven times.

  Leases are issued only after a permittee drills a geothermal well within a permit area and submits a satisfactory development plan for the location. Leases are issued for a 20-year term and may be renewed.

  In other jurisdictions, access to subsurface resources would generally be granted by the owner of the subsurface resources, or where the resource is owned by the Crown, access would be granted by the Crown.

• 1.3 Is exploration/exploitation open to foreign investment?

  Yes, the exploration and exploitation of geothermal resources in Canada are open to foreign investment. There are restrictions on major investments (those above $1 billion CAD) by foreign controlled corporations and foreign state owned enterprises.

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  As referenced above, in BC the Ministry issues and administers geothermal resource rights on behalf of the government of British Columbia and operates in connection with other provincial agencies to regulate exploration and drilling activities.

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  Administrative bodies in this area generally do not assign their roles.  In the course of fulfilling their duties, either with respect to the approval process or with respect to supervising operations, the administrative bodies may consult with any third party having relevant information (including professional organizations, standards-setting bodies, and industry groups), but administrative bodies generally do not delegate or sub delegate their authority.

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

  We are not aware of any government policy currently in place.

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  The exploitation of geothermal resources is subject to a licensing regime, which includes permits, leases, and licenses. 

  In BC, the Ministry issues and administers geothermal resource rights on behalf of the Government of British Columbia and, with other provincial agencies, regulates exploration and drilling activities.

  Permit and lease holders may apply to the Minister of Energy and Mines (the “Minister”) to develop and produce a geothermal resource. Development and production can move forward only with the approval of the Minister. 

  In other provinces, the exploration of subsurface resources will generally be subject to licensing, however, as a specific regime for geothermal energy has not been created in those other provinces, the process is not yet defined.

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  In Canada, subsurface resources may be owned separately from the surface of the land. Where the subsurface resource is to be explored and exploited, this may usually be done without the consent of the surface owner though the surface owner is usually consulted and may be compensated for any disturbance. Surface works such as a power plant generally require that the surface owner grant the right to occupy the surface lands.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  The objections of a surface landowner or other affected party will generally be considered but neither would typically have a "veto" right over subsurface development. This may be dealt with by way of compensation.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  In BC, leases are issued only after a permittee drills a geothermal well within a permit area and submits to the Minister a satisfactory development plan for the location. The terms of the development plan are subject to approval by the Minister. Leases are issued for a 20-year term and may be renewed.

  In respect of decommissioning at the end of a lease term, the Minister may make orders relating to the decommissioning of specific wells or locations, including orders that wells be capped, closed or cleaned. In addition, under the BC Environmental Protection and Management Regulation, decommission and restoration obligations of geothermal operators include restoration of the surface soil and natural surface drainage patterns, re-vegetation of exposed soil, stabilization of cut slopes, and re-contouring of bladed and excavated areas. Upon completion of restoration activities, operators must request that the Minister issue a certification of restoration certifying that all equipment, wells and facilities on the location of the lease or permit have been removed, plugged or are otherwise in safe condition and that the land surface has been satisfactorily restored.

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  (i) exploration: In BC, geothermal exploration permits are issued through a sealed bid public competition. Prior to the sale, a public notice is published in the B.C. Gazette, outlining all the terms of the permit tenure disposition and the specifics of the tenure terms. Bids are opened on sale day and evaluated according to the criteria outlined in the public notice. The successful bidder’s name is released shortly after the sale has concluded through a notice posted on the Government of British Columbia website. All bid materials must be submitted by email or post mail to the Energy Policy and Regulation Branch of the Electricity & Alternate Energy Division of the BC Provincial Government. 

  The other provinces have not yet provided a blueprint for obtaining licenses for geothermal activity.

  (ii) exploitation and power plant: In BC, applications to develop geothermal resources are made to the Minister, pursuant to the regulations under the Act. The application must include:

  • an assessment of hydrological, geothermal and geological conditions in the reservoir;
  • number and location of geothermal wells required for adequate development;
  • any other information requested by the Minister.

  Similarly, applications for production of a geothermal resource are made to the Minister, pursuant to the regulations under the Act. The application must include:

  • an estimate of the volume of the geothermal resource to be produced with the hydrological, geothermal and geological conditions in the reservoir that have been determined;
  • the location of each well to be produced and the proposed rate of production for each well;
  • a description of the production facilities that will be used and the proposed disposition of the resource;
  • a plan for the protection of the environment;
  • any other information requested by the Minister.

  In addition, power plants may be subject to a range of provincial licensing and permitting requirements including air and water emissions permits, wildlife protection, public health and safety, environmental monitoring and protection, road construction and use, water use, and electrical and building permits.

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  (i) exploration: Under the BC Act, exploration permits are issued for one year and may be renewed up to seven times.

  (ii) exploitation and power plant: Exploitation leases are issued for a 20-year term and may be renewed. Leaseholders may apply to the Minister for approval of geothermal development plans and geothermal production plans. In the case where a production plan has been approved, a renewed lease will expire on the 20th anniversary of its renewal, and where no production plan has been approved, on the fifth anniversary of its renewal.  

• 7. Terms of License

• 7.1 What are the general terms of the license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) exploration drilling and other drilling,
     (iv) power plant (generation license)?

  (i) exploration: In BC, exploration permits will not be issued except by public tender. They will include terms which define the geographical boundaries of the permit, and the prescribed rent. Permit holders have the exclusive right to apply for well authorizations for wells to be drilled within the geographical boundaries of the permit. 

  (ii) exploitation: Once a geothermal well has been drilled by a permit holder, that permit holder may submit a development plan to the Minister. If the Minister considers the development plan satisfactory, it will issue a lease in respect of that location. Once the lease is issued, the permit expires with respect to the location of the lease, as it is no longer required. The lease holder must pay the prescribed rent for the lease.

  (iii) exploration drilling and other drilling: same as above

  (iv) power plant: Under the BC Act, there are no general terms provided for these licenses. 

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  Under the BC legislation, exploration permits do not automatically convert into exploitation leases. However, exploitation leases are issued only to exploration permit holders, and only after a permittee drills a geothermal well within a permit area and submits to the Minister a satisfactory development plan for the location. 

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  The license to construct a power plant is generally separate from the license to produce the resource.  Power plants may be subject to a range of provincial licensing and permitting requirements including air and water emissions permits, wildlife protection, public health and safety, environmental monitoring and protection, road construction and use, water use, and electrical and building permits.

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  In BC, permittees and lessees are subject to a number of ongoing obligations including obligations relating to work, access and inspection, and health and safety.

  Work Requirements: Each year in accordance with the regulations under the BC Act, a permittee must (a) carry out, in respect of the permittee's location, geothermal exploration of a value prescribed by the regulations, or (b) make payments in place of said work. In addition, a permittee must record all work, including road construction giving access to the location, with the Minister.

  Access and Inspection: At any reasonable time, persons authorized by the Minister have the right (a) to enter on and inspect any well or place at which geothermal resources are handled, processed or treated, (b) to inspect all equipment and records relating to the resource, and (c) to take samples or particulars or carry out tests or examinations.

  Health and Safety: A person holding a permit or lease must keep all machinery, equipment, wells and other facilities on the location in a safe condition.

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  (i) exploration license: The BC Act does not address which actions by a license holder would warrant revision of a license. However, under the Act, the Minister and the Lieutenant Governor in Council may make regulations or orders which may vary the terms of a license or revoke or suspend any license issued under the Act. 

  (ii) exploitation license: Same as above

  (iii) power plant license: Same as above. 

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  (i) exploration license: Where a permittee or lessee fails to comply with a provision of the Act, or a regulation, notice, or order made pursuant to the Act, or a term, covenant or condition of that person's permit or lease, the permit or lease may be cancelled.

  (ii) exploitation license: See above. 

  (iii) power plant license: Licenses are generally not revocable without material non-compliance on the part of the licensee.

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  Yes, the Minister may make regulations of general application and may also make orders related to a specific location or well. These regulations and orders can relate to various aspects of well drilling, the production of geothermal resources, and the conservation of geothermal resources and may provide for terms, stricter or more lenient than those otherwise prescribed by law.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  A person who contravenes certain of the provisions of the BC Act may be liable to a fine of not less than $500 and not more than $5000. In addition, if a permittee or lease fails to comply with any provision, regulation, notice or order made under the Act the Minister may give the person notice to comply. If the person does not comply within 60 days after the notice is received, the Minister may declare the notice or lease to be cancelled.

  In addition, if after inspection of a location or well, the Minister consider that the method or practice being employed in connection with the location or well constitutes a health or safety hazard, the Minister may give notice of the hazard and may require that the method or practice be discontinued or that all operations cease until the matter is remedied.

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  In BC, under the Act, the Minister retains the right to enter and inspect any well, or any other facility where geothermal resources are handled, processed or treated.  In addition, the Minister retains the right to inspect all equipment, plant, and records relating to the resource, and to take samples or carry out tests or examinations.

  After giving reasonable notice, the Minister is permitted to inspect records, and during business hours, in order to inspect those records has the right to enter the place where the records are kept.

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  (i) exploration license: In BC, a permit holder must carry out geothermal exploration of a prescribed value in every year. In the alternative, a permit holder may make payments instead of performing the work. A permit holder must record all work performed within a given permit year and provide this information to commissioner appointed under the Oil and Gas Activities Act. 

  (ii) exploitation license: In BC, a well operator must take a series of samples and prepare and deliver to the Ministry, within 30 days of the release of the drilling rig, descriptions of these samples and of any cores taken in the well.

  In addition, a well operator must submit to the Ministry the results of a bottom hole sample analysis, a pressure, volume or temperature analysis, or a measurement made on a well for the purpose of investigating the well's producing characteristics. 

  Further, as drilling progresses, a well operator shall record abnormal changes in well temperatures and drilling rates on its daily report and submit a copy of each log to the Ministry not more than 30 days after the date the log was taken.

  (iii) power plant license: This is generally provided in the license and would include such things as production levels.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  In most provinces, the terms of Power Purchase Agreements are subject to approval by utilities commissions or similar authorities. The terms of the Power Purchase Agreements are not prescribed by regulation. 

  It should be noted that in most provinces, the wholesale market for electricity is a monopoly which is operated by an agency of the government.  In addition to regulatory requirements for constructing a generating facility, it is also necessary in those provinces to enter into arrangements (such as a power purchase agreement) with that agency, on the terms and conditions prescribed by that agency.  Such arrangements are frequently entered into pursuant to a request for proposal (RFP) process.  

• 10.2 What is the permitted or general duration of PPA's?

  There is no specific rule but terms of 20 years or more are typical.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  See above.

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  Aside from as described below, no other incentives are currently in place.

• 11.2 Are there any incentives offered by the government or local authorities for utilization of geothermal energy? If yes, in what form (e.g. tax and/or feed-in tariffs) and what are the maximum amounts permitted?

  No.

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  Requirements will vary across provinces but these programs generally require that projects be emission free or emission neutral and may have additional requirements such as aboriginal participation.

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  The tax regime generally encourages clean energy projects by allowing accelerated depreciation in respect of the capital equipment used to generate clean energy.

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  The Canadian Crown has a constitutional duty to act honorably in its dealings with Canada’s Aboriginal peoples. This obligation requires that the federal and provincial governments of Canada engage in consultation and accommodation with the Aboriginal peoples of Canada when the government contemplates actions that may affect Aboriginal or Treaty rights. 

  The duty of consultation and accommodation arises often in the context of natural resource development. 

  In many provinces in Canada it is often industry that consults with Aboriginal groups, though the ultimate substantive duty to ensure proper consultation and accommodation lies with the provincial and federal governments. 

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  Laws are generally not retroactively applied unless the legislatures specifically state them to be retroactive. Governments are also sensitive to changing the rules for existing license holders so as not to create unnecessary uncertainty.

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  Laws are generally not retroactively applied unless the legislatures specifically state them to be retroactive. Governments are also sensitive to changing the rules for existing license holders so as not to create unnecessary uncertainty.

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  Taxation of geothermal producers is governed by Canada’s Income Tax Act.  

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  Under Canada’s Income Tax Act, the cost of drilling and completing geothermal wells is fully deductible as a Canadian renewable and conservation expense in the tax year it is incurred provided that at least 50% of the capital cost of the depreciable property will be used in an electricity generation project and provided that the depreciable property is included among the class of assets eligible for the 30% accelerated capital cost rate. Assets eligible for the accelerated capital cost rate under Canada’s Income Tax Act include certain types of renewable energy and conservation equipment including geothermal equipment.

  Income earned in Canada by a corporation is generally subject to a 15% federal tax and a provincial tax of between 11.5% and 16%.  The calculation of income is relatively complex and there are many opportunities to reduce a corporation’s effective tax rate.  In particular, in order to encourage clean energy projects the capital equipment used to generate clean electricity may be depreciated at a greatly accelerated rate.

• 14.3 Is the sale of energy subject to VAT?

  All energy is subject to the 5% federal goods and services tax, and most provinces impose an additional sales tax of 5-8%.

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  A tax credit is provided for sales taxes paid by anyone who is not the end user (so that generators pay tax only on the value added and not on gross sales).

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  Investments in Canada by investors from WTO countries are subjected to regulatory review if the investment exceeds $1 billion CAD.  Lower review thresholds apply to investments by investors from non-WTO countries and by state-owned enterprises.

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  In BC, the Act stipulates that before production of a geothermal resource can begin, the Minister must give approval. The application to the Minister for approval must include, among other things, a plan for the protection of the environment. 

  Similar rules are expected to apply in other jurisdictions based on existing rules in place for other similar developments.

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  In BC, geothermal exploration, exploitation, and production is governed by the permit and lease tenure schemes under the BC Act.

  Similar rules are expected to apply in other jurisdictions based on existing rules in place for other similar developments.

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  Operators to whom a well authorization has been issued are required to deposit with the Minister security in the amount of CAN$225,000 for each geothermal well as security for the proper completion of the well in compliance with the BC Act. The Act provides that the entire CAN$225,000 is to be returned to the operator upon issuance by the Minister of a certificate of restoration in respect of all of the operator’s authorized activities. 

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  No.

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  N/A

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  The BC Act is the only geothermal specific legislation in Canada. Certain aspects of geothermal drilling, extraction, and restoration are regulated in cooperation with other provincial agencies.

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  Generally, yes. Multiple uses of the same resource would be considered favorably compared to an application for a single use.

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  In theory yes, though we are not aware of any such applications.

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  This would be considered on the merits of the application. As Canada has abundant fresh surface water resources near its major population centers and the geothermal resources tend to be remote, we would not expect that this would be a highly sought after resource.