Ontario's Building Ontario Fund Pioneers Creative Financing for Nuclear and Infrastructure Projects
The Building Ontario Fund (BOF), an $8 billion provincial agency, is implementing groundbreaking financing strategies to accelerate essential infrastructure development across the province. In a significant move, the fund has invested in the Western Hemisphere's first small modular nuclear reactor (SMR) complex, with plans to divest its stake once the project becomes operational and begins generating revenue.
Addressing Market Gaps with Strategic Investments
According to Michael Fedchyshyn, chief executive of BOF, the fund's mandate focuses on addressing market failures where private capital is hesitant to invest due to perceived risks or other barriers. "The small modular nuclear reactors are a great example of this," Fedchyshyn explained in a recent interview. "Because it's a first-of-its-kind technology, and because it's greenfield and risky for all the reasons you'd expect of a large energy project, private capital was not coming to the table to finance this transaction at this stage."
The SMR project currently under construction in Ontario carries an estimated price tag of $20.5 billion, with the first reactors not expected to come online until 2030. This substantial investment requirement and extended timeline have deterred many traditional investors from participating in the venture.
Innovative Exit Strategy for Public Investment
Fedchyshyn outlined the fund's innovative approach: once the project is "de-risked"—meaning construction is complete and the nuclear units begin generating electricity and revenue—the BOF will seek to exit by selling its stake to private investors who are more comfortable with operating nuclear facilities. "We'll take out our interest, and then we'll go ahead and do something else with that capital," he stated, emphasizing that the BOF is designed to be self-sustaining, generating sufficient returns to maintain operations and continue addressing market gaps.
This financing model represents a novel approach to public-private collaboration in infrastructure development. "This was the first time that the province structured an energy asset into a special purpose vehicle, specifically with the intent of later attracting private capital into that investment," Fedchyshyn noted, highlighting the transaction's significance within financial circles.
Diversified Portfolio Beyond Nuclear Energy
Beyond its $1 billion commitment to the pioneering SMR project, the Building Ontario Fund has diversified its investments across multiple sectors. The agency has also allocated resources to long-term care facilities and real estate developments, demonstrating a comprehensive approach to addressing Ontario's infrastructure needs.
The nuclear transaction, conducted in partnership with the federal Canada Growth Fund, exemplifies how government entities are exploring new methods of coordinating with private industry to enhance economic competitiveness. This approach mirrors other innovative government initiatives, such as the federal government's recently announced "tradable credit system" for the automotive sector, which links import duty rates to companies' domestic production levels.
Fedchyshyn emphasized the broader implications of these financing innovations: "That it's a first-of-its-kind technology in the G7 has been well reported on. But it's also a first-of-its-kind financing." This dual innovation—both technological and financial—positions Ontario at the forefront of infrastructure development strategies that could serve as models for other jurisdictions facing similar challenges in funding critical projects.
