A nascent Ontario government agency responsible for funding important, yet risky, infrastructure projects may play a pivotal role in developing data centres across the province, country and beyond.
The Building Ontario Fund is investing in small modular nuclear reactors, or SMRs, a move its CEO says will help manage the enormous energy needs of data centres and reduce operating costs. Backed by $3 billion from the provincial government, the Toronto-based Building Ontario Fund said it partners with institutional investors and Indigenous groups to close financing gaps and advance priority infrastructure projects.
Along with Ontario Power Generation and Canada Growth Fund, BOF is an equity partner in the first grid-scale SMR project in North America, taking place at the Darlington Generating Station at 2151 South Service Road in Clarington, just east of Toronto. The first 300-megawatt unit is slated to become operational in 2030, with three more planned to follow.
“The hope for the small modular nuclear reactor technology is that it can be co-located with large industrial users, the steel industry or critical minerals mining and data centres,” Building Ontario Fund CEO Michael Fedchyshyn told CoStar News.
“Small modular nuclear reactor technology generally is designed to be easily scalable. It acts as distributive generation, which means it’s placed close to load centres and data centres. And being that data centres are huge users of power, the biggest single challenge in siting a data centre is the availability of power, and more so cost-effective power, which can include requirements for major system upgrades, transmission system upgrades, to get the power to the location of the data centre.”
The explosive growth of artificial intelligence, or AI, and machine learning is fueling demand for data centres — and the energy sources needed to power them — across the U.S. and Canada. In fact, Canada must build as much electricity capacity in the next 25 years as it added over the previous 100 years to keep up with the expected demand, said Philippe Dunsky, president of Dunsky Energy + Climate Advisors, at a digital infrastructure conference last month in Montreal.
Data centre boom drives chase for energy
Dunsky described the chase for energy as a "timing and scale mismatch" between fast-moving investors and the "slow-moving beast" of the power sector.
According to CBRE, there are more than 300 data centres across Canada. The data centre market was valued at $10.4 billion in 2024. The number is expected to reach $16.8 billion in four years as demand rapidly accelerates for cloud services, data storage and artificial intelligence.
However, the market’s growth is highly dependent on sufficient electricity supply, and due to rapidly changing demand driven by AI and high-performance computing, it’s difficult to predict how much power will be required in the future.
The solution will have to be sustainable, CBRE said.
“We’ve been seeing mandatory energy efficiency targets becoming more comprehensive in the last 18 months,” said Martin Reed, CBRE’s global energy and sustainability director, in a statement. “In Europe the EU Energy Efficiency Directive has driven transparency and common performance metrics to be reported, such as energy and water use, power effectiveness and power utilization.
“The aim of this legislation is to increase transparency and incentivize efficient operation. After all, the cheapest and cleanest energy is the energy that is not used at all.”
Therein lies the promise of SMRs — they’re low emitters. According to the World Nuclear Association, an SMR is a sustainable, low-carbon energy source said to be ideal for replacing fossil fuels and supplementing renewable energy grids.
Ontario seeking to be a global leader
Moreover, Ontario is home to about 80% of the components needed to establish an SMR supply chain, Fedchyshyn said. Ontario can position itself as a major player among the Group of Seven, or G7, industrialized democracies in the nuclear energy industry.
“Being the leader in the G7, this is not just about winning the race, it’s about establishing the local supply chain that provides all the parts and components that go into these small, modular nuclear reactors, as well as the expertise required to stand them up,” said Building Ontario Fund's Fedchyshyn. “And the jobs and economic impact of these are massive when you’re at the front of the bus on developing these things. About 80% of the componentry of the cost of these reactors are homegrown here in Ontario. They’re being supplied by Ontario companies."
There is risk associated with investments in small modular nuclear reactors because, as an incipient technology for which no local precedents exist, many assumptions are involved, Fedchyshyn said.
“It’s a personal kind of project in the G7, so it carries lots of risk: there’s the technology risk, the regulatory risk, and the deliverability risk, the budget risk, the first-of-its-kind technology — all the normal big-picture risks you have with large projects — and the private markets just weren’t there to invest at any sort of reasonable price,” he said. “This is an example of where a fund like the Building Ontario Fund, or Canada Growth Fund as well, can really be catalytic to move a project forward."
The investment partners’ intention to reduce the private sector’s consternation will be achieved through scaling SMRs, at which point they hope to attract institutional money.
“Once this asset is operational, once it’s producing kilowatt hours, and once it’s through the rate-setting process with the Ontario Energy Board and it essentially has a power purchase agreement, it becomes an attractive asset for a pension fund or an infrastructure investor, almost certainly,” Fedchyshyn said. “Our job is to get past those risky parts and get it to that point."