Ontario’s post-Bill 5 energy and infrastructure environment has undergone measurable shifts in credit evaluation, capital deployment, and market expectations. The government's stated rationale focused on affordability, flexibility, and economic competitiveness, especially in the face of rising electricity demand and industrial restructuring. However, changes to regulatory oversight, procurement pathways, and program funding have introduced new uncertainties that are now reflected in institutional behavior and investor sentiment. These shifts are not uniform in impact, but they raise important considerations about risk pricing, capital allocation, and long-term infrastructure value under evolving energy policy conditions.
Credit Ratings and Investor Flight
Credit agency outlooks
- In the first half of 2025, both Fitch Ratings and Moody’s Investors Service revised their outlooks for Ontario’s energy-related infrastructure investment landscape.
- Fitch Ratings, in March 2025, downgraded Ontario’s infrastructure credit outlook from “stable” to “negative.” The agency cited the erosion of arms-length regulatory review, especially the sidelining of the Ontario Energy Board (OEB) and Independent Electricity System Operator (IESO), as a signal of elevated fiscal governance risk.
- Fitch also raised concerns about the expanded authority of the Minister of Energy to approve procurement and planning decisions without technical vetting, which may result in cost overruns, procurement inefficiencies, and long-term stranded asset exposure.
- Moody’s, in April 2025, echoed these concerns, referencing “structural uncertainty in energy governance” and the risk of policy reversals or inconsistencies (termed "policy whiplash”) as key variables impacting investor confidence and long-term project finance assumptions.
Market impact
- Though no formal credit downgrade has occurred, these outlook revisions have triggered portfolio de-risking among some large bondholders and infrastructure funds.
- Ontario’s cost of capital has increased, with risk premiums embedded in bond issuances and private debt instruments tied to new infrastructure.
- Project developers are now facing higher borrowing costs, which in turn may reduce project viability or delay capital-intensive upgrades, especially in sectors with thin margins (e.g., energy storage, community solar, or non-regulated utilities).
Frozen Market Signals
Clean energy investment decline
- Bill 5’s suspension of post-2022 competitive procurement rounds and withdrawal of programmatic efficiency funding led to a 27% quarter-over-quarter decline in clean energy investment in Q1 2025, according to CanREA.
- Developers such as Enwave Energy Corporation and Boralex Inc. paused or canceled projects citing:
- Lack of procurement clarity
- Uncertainty around emissions policy alignment
- Shifting eligibility criteria under provincial funding mechanisms
- These withdrawals have not been fully replaced by new market entrants or restructured project bids, creating a capacity gap in both utility-scale renewables and behind-the-meter systems.
Capital flight
- Investment flows have shifted toward jurisdictions with stable policy environments, such as:
- Quebec, where clean energy procurement is integrated into multi-year hydro-renewable balancing strategies
- The U.S. Northeast, where tax credits under the IRA (Inflation Reduction Act) are supporting long-duration storage, offshore wind, and hydrogen infrastructure
- Ontario’s share of new clean energy project announcements fell below 15% in Q2 2025, the lowest level recorded since 2015, according to the Canadian Clean Energy Tracker.
Special economic zones and foreign participation
- Bill 5 authorizes the creation of Special Economic Zones (SEZs), in which cabinet may exempt designated projects from procurement rules, environmental assessments, and local permitting frameworks.
- While presented as a tool to accelerate strategic infrastructure and attract foreign direct investment, stakeholders have raised concerns about:
- Regulatory inconsistency
- Lack of transparent selection criteria
- Potential for uneven competition or market distortion
- Foreign investors and international consortia have expressed hesitancy to participate in SEZ projects without legal clarity regarding dispute resolution, emissions liabilities, and zoning overrides.
Gas Lock-In Risk
Shift toward gas-fired generation
- Under the new procurement regime, Ontario has issued multiple contracts for gas-fired peaker plants, positioned as a reliability hedge during nuclear phase-outs and electrification ramp-up.
- These contracts are framed as interim capacity measures, with proponents arguing that Ontario’s aging baseload fleet and transmission constraints necessitate dispatchable capacity.
Long-term exposure risks
- Analysts from the Canadian Climate Institute, Clean Energy Canada, and financial modeling groups such as RMI Canada have raised concerns about:
- Volatility in natural gas prices, particularly during winter peak demand periods or in the event of cross-border pipeline disruptions
- Rising federal carbon pricing, projected to increase from CAD $80/ton in 2025 to CAD $170/ton by 2030, which will increase operating costs for gas-fired assets
- Stranded asset risk, particularly for gas projects entering service after 2027, if battery storage, demand response, and distributed resources become more cost-competitive or mandated under future policy shifts
Emissions and performance forecasts
- A May 2025 Canadian Climate Institute projection indicates:
- Ontario’s grid emissions intensity could rise by 17% by 2027 if current procurement and conservation policies remain in place
- Underutilization of contracted gas assets due to mismatched load and carbon constraints could result in capacity charges without equivalent system value
- Failure to reintegrate energy efficiency and non-wires alternatives may raise total system costs by 5-8% annually over the next decade
Broader Economic and Market Implications
Investor confidence
- The combined effects of policy shifts, procedural opacity, and governance centralization have led many institutional investors to adopt a cautious stance, delaying new project entries until there is greater policy clarity.
- Risk-adjusted return expectations have risen, and multiple pension-backed infrastructure funds have placed Ontario-specific energy investments under internal review.
- There is emerging divergence between Ontario and provinces with stable planning frameworks, resulting in differential risk pricing across public infrastructure bonds and energy-linked securities.
Market structure
- The absence of demand-side resource support and long-term clean energy procurement has narrowed market participation, limiting innovation in virtual power plants, capacity aggregation, and behind-the-meter services.
- Emerging clean technologies (such as grid-interactive buildings, hydrogen-ready infrastructure, and AI-optimized load balancing) are less likely to scale under a market design focused on centralized gas capacity procurement.
Business and consumer impact
- Commercial and industrial energy users now face increased exposure to both volumetric volatility (due to gas dependence) and carbon cost pass-through, especially if carbon pricing trajectories accelerate post-2026.
- Public institutions (including school boards, hospitals, and municipal facilities) have lost access to energy efficiency retrofits and capital planning support, limiting their ability to control long-term operating expenses.
- Residential consumers, particularly in older building stock, face higher utility bills without access to retrofit incentives or appliance rebates, and are more vulnerable to energy poverty in high-use months.