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Powering the future of data centres in Canada

Global demand for data centres is growing exponentially. Organizations across industries depend on these facilities for the storage and processing capacity that powers everything from vast cloud archives to energy intensive AI workloads.

06/04/2026 · 5 minute read

Global demand for data centres is growing exponentially. Organizations across industries depend on these facilities for the storage and processing capacity that powers everything from vast cloud archives to energy intensive AI workloads.

It’s not just businesses and investors that recognize data centres’ significance — the Canadian government now treats data centres as strategic national infrastructure. 

While this growth presents new opportunities, it also brings significant challenges and risks, especially around power supply and demand. Large data centres can consume upwards of 100 megawatts (MW) of power, with emerging services such as AI and cryptocurrency likely to drive power demands still higher in the future.

Data centre owners must also contend with grid connection limits, efforts to reduce reliance on fossil fuels, and volatility in energy costs. The following guidance explores Canada’s data centre power landscape, including emerging generation options, regulations, risk transfer and contractual considerations, and the trade-offs between innovation and risk.

A closer look at the Canadian landscape

Data centres can put significant strain on national grids, to such an extent that some countries are now limiting access.

In Canada, many provinces are using temporary freezes, capping of total capacity, and strict allocation systems to control how and whether new data centres can connect to the grid. 

However, demand for new data centres continues unabated and owners are looking for power solutions that don’t rely solely on grids. These solutions include different power generation and storage technologies — such as renewables, natural gas, lithium-ion batteries, and nuclear — as well as new kinds of relationships between power providers and data centres.  

Future-looking power generation

With both data centre owners and their clients under pressure to reduce carbon emissions, finding sources of power that are not derived from fossil fuels is a priority. While there is significant innovation in the energy sector, different options introduce new risks. 

For example, renewables such as wind and solar are unlikely to be able to provide the consistency of baseload power that large data centres require. Lithium-ion batteries can store huge volumes of power, but pose a fire risk, increasing the risk of outages from damaged battery packs. 

Nuclear power offers another option. Small modular reactors (SMRs) can generate the required amount of low-carbon, low-cost electricity. Further ahead, emerging solutions such as fusion may potentially open up greater opportunities for addressing vast low-carbon energy needs. 

Like many breakthrough technologies, key challenges include high first of a kind production costs, uncertainty about safety and reliability, and significant regulatory hurdles in most regions. Microsoft’s recent commitment to nuclear, as part of its strategy for reopening Three Mile Island nuclear power station, may act as an endorsement of large-scale private nuclear investment in the future.  

Rethinking the relationship between power providers and data centres

Microsoft’s decision to revive a mothballed nuclear power plant, at significant cost, shows that data centre owners are prepared to take different approaches to fulfilling their power needs. Other models include onsite power and virtual power purchase agreements (VPPA).

Onsite power puts power production and a data centre together on a single site. For example, a solar power plant and data centre could be located together. This provides obvious advantages in terms of the close relationship between a data centre owner, their clients, and power plant owners, while also introducing several operational risks.

Co locating a power plant and a data centre poses significant geographic and environmental challenges. Renewables like wind, solar, and battery energy storage system (BESS) need substantial land to deliver the consistent, reliable output that large data centres require, and suitable sites are unlikely to meet other critical needs such as low latency network connections or proximity to end users. Nuclear options face further constraints — exclusion zones and other safety requirements make co location effectively impractical.

From a commercial risk perspective, power facilities and data centres are often developed, owned, and operated by different parties, so contracts must clearly address how losses or disruptions at one site impact the other. For example, if a fire at the power plant causes an outage, the data centre operator and its customers need defined mechanisms for compensation and continuity.

Provincial variations and regulatory challenges

Each Canadian province has a different approach to powering data centres. While most provinces allow co-located and dedicated power generation, significant restrictions still apply to high-demand users. Alberta is currently the only province that allows and encourages self-supplied power generation and currently permits the use of natural gas technologies to do so. 

Such projects are often constrained by same site/sole use rules and face uncertainties around tariff structures and shifting regulations. Outside Alberta, provinces generally limit behind the meter systems to small (<100 kW), net metered, own use renewable installations and typically require grid interconnection even when a dedicated supply is proposed. Consequently, data centre developers in Canada must coordinate closely with municipal and provincial authorities, utilities, and system operators to secure reliable power.

Risk transfer and contractual considerations

Typically, data centres are required to have exceptionally high availability of around 99%, which roughly equates to a maximum 26 minutes of downtime per year. Not meeting this commitment can expose the data centre owner to large financial penalties through contracts, so assessing the full impact of a power outage and appropriately addressing spare capacity is vital. Limiting outage liability to agreed liquidated damages and aligning contractual caps with realistic insured limits is also key when drafting the contractual obligations.

Another potential piece of the contractual framework is a virtual power purchase agreement (VPPA). This is a financial contract between the data centre and a third-party power producer that specifies the data centre will buy, and the party power provider will supply, consistent stable power. The terms of the contract, and business interruption insurance to cover any breaches, must be very carefully considered.  

Balancing innovation with risk management

Meeting future electricity demand for data centres will be fundamental to realizing the business and economic potential offered by new technologies like AI. 

However, power resources are currently causing a bottleneck, with pressure on both data centre owners and power providers to find new approaches. Mitigating the risk of data centre downtime from power outages and assessing the risks posed by emerging power sources are two key priorities for owners and investors.

Marsh’s experienced risk advisors in Canada can help you navigate these challenges and develop customized insurance programs specific to your project needs. Our Nimbus insurance solution is designed to enhance business resilience and streamline coverage at every stage of the project lifecycle, from planning and construction to completion through to handover.

To learn more, speak with a Marsh representative

Contact us

Our people

Leanna Loughlin

Senior Vice President, Global Energy & Power Practice

Matthew Pullen

National Industry Practice Leader – Power & Renewable Energy

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