An $8 billion Ontario agency that invested in a first-of-its-kind small modular nuclear reactor (SMR) complex says it plans to sell its stake once the project is complete and starts generating revenues, one of a range of new financing models

government bodies across Canada are using to jumpstart key projects . The funding set-up ties into the Building Ontario Fund’s (BOF) mandate to address market failures, or investment opportunities where the risks or other factors deter private capital, leaving projects unbuilt.

“The small modular nuclear reactors are a great example of this,” said Michael Fedchyshyn, chief executive of BOF, in a recent interview.

“Because it’s a first of a kind technology, because no one’s done it before, and because it’s greenfield and risky for all the reasons that you’d expect of a large energy project this private capital was not coming to the table to finance this transaction, not at this stage.”

The sheer size of the necessary investment — the SMRs under construction in Ontario are currently estimated to cost $20.5 billion — and the timeline, with the first reactors not expected to come online until 2030, have scared off many investors.

However, Fedchyshyn said that once the project is de-risked , meaning construction is finished and the nuclear units begin generating electricity and therefore revenue, the BOF will look to exit by selling its stake to private investors, who are more comfortable with operating nuclear units.

“We’ll take out our interest, and then we’ll go ahead and do something else with that capital,” he said, adding that the BOF is intended to be self-sustaining, generating enough returns to keep its lights on and to continue addressing market gaps.

In addition to the agency’s $1-billion backing of the Western Hemisphere’s first SMR, it has also made investments in long-term care and real estate.

The nuclear transaction, conducted alongside its federal counterpart, the

Canada Growth Fund , is also drawing attention within the cloistered world of finance because it shows new ways that government is coordinating with private industry to make the economy more competitive.

“That it’s a first of a kind technology in the G7 has been well reported on,” said Fedchyshyn. “But it’s also a first of a kind financing. This was the first time that the province structured an energy asset into a special purpose vehicle, specifically with the with the intent of later attracting private capital into that investment.”

The transaction provides one example of how governments are searching for new ways to coordinate with private industry to make the economy more competitive. In another example, the federal government earlier this month said it would create a “tradable credit system” for the auto sector that ties import duty rates to companies’ auto production levels here.

The BOF’s investments in SMR technology tie into a provincial goal to leverage its knowledge of nuclear power generation into jobs, energy infrastructure and

potential export opportunities . Energy Minister Stephen Lecce has already said the province sees great opportunity to export nuclear services to other countries and plans to refurbish its existing nuclear plants and possibly build new units, too, over a period of decades at a cost of tens of billions of dollars.

Its main shareholder, Ontario, of course has many needs. Fedchyshyn said his fund invested in long-term care facilities because it realized that the economics weren’t attracting enough private capital.

“There’s a massive cost differential in the cost of care between housing a senior that should be in a long-term care bed in a hospital versus in that long-term care home,” he said. “When we finance a project to build long-term care beds, part of our return to our shareholder, the province, is realized outside the fund.”

Nonetheless, those savings are quantifiable and will be added into what the BOF calls its “total return.”

That gives the BOF wide latitude to choose where it invests.

“What’s neat about this agency, and what separates it, is we have not tried to create nice rectangular, square boxes for projects to fit in,” Fedchyshyn said. “We’re much more iterative, much more collaborative and much more flexible than that, and we take a right-tool-for-the-job approach to try to get these projects across the line.”

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