CMHC’s New Energy Criteria: Modcity’s Perspective

As a starting point, it is important to note that the MLI Select program has different requirements depending on whether a building is a new build or a renovation, and whether it falls under Part 9 or Part 3 of the building code. For this article, we’re discussing new-build Part 9 buildings only, which is what Modcity builds.¹

The transition period for CMHC’s updated MLI Select energy criteria ended on September 30, 2026. The change was announced well ahead of time, giving applicants an opportunity to submit projects under the previous framework. Now, we need to tackle the new points system.²

New Framework

Under the previous framework, the highest energy-efficiency score required at least a 40% reduction in energy consumption and greenhouse gas emissions against NBC 2015 or NECB 2017. The current new-construction framework measures energy-consumption improvements against the updated 2020 codes.³

MLI Select is a points-based program. To earn the maximum 50 energy points under the Part 9 low-rise route, a project now needs to achieve 70% better energy performance than NBC 2020 Tier 1.⁴

It is not as simple as increasing from 40% to 70%. Since the reference codes have also changed, each design needs to be reassessed by the project’s qualified energy consultant.

Modcity submitted 30+ fourplex and sixplex buildings, roughly 200 units in total, under the previous framework. We have spent the last four months analyzing the best way to meet the new criteria in a cost-effective and sustainable manner.

In our view, achieving the full 50 energy points remains important to maximizing financial feasibility, as the total points influence amortization options, insurance premiums and financing assumptions.

Modcity’s Approach

Our analysis points to a combination of mechanical systems similar to those used under the previous framework, an improved building envelope, primarily windows and insulation, and, most importantly, solar panels to help reach the new thresholds.

Solar panels are familiar on industrial buildings but are still less common on residential rooftops in Toronto. Nearby tree canopy, available rooftop space and roof orientation are key factors that affect their performance and financial benefits.

At Modcity, we build tall buildings, mostly around 12 metres in height, which can rise above neighbouring houses and some nearby trees. Our flat roofs also allow us to maximize the space available for larger photovoltaic (PV) systems and provide flexibility in panel orientation to improve sun exposure. Shading still needs to be assessed site by site.

Analysis

Based on our current estimates, these systems, including installation, have an upfront cost of approximately $30,000 to $60,000, depending on their size and the equipment selected.

Historically, electricity rates have increased by approximately 3.70% annually over the last 20 years.⁵

Using that historical 3.70% growth rate as an illustrative assumption, a $40,000 system for a building with ten three-bedroom units in central Toronto, assuming $5,000 in first-year electricity cost savings, would produce a 20-year IRR of about 14.5%, before degradation, maintenance, replacement costs and taxes, with no residual value. That shows how a mid-teens return could be achievable under those assumptions.⁶

Panel degradation and maintenance still need to be factored in; however, quality equipment and a reputable supplier’s warranty can help manage certain risks. There are also certain rebates.

Not a bad return, particularly where the insured financing cost is substantially lower. The issue is whether the project’s loan amount can support the additional upfront cost to actually finance those solar panels. That needs to be assessed case by case, although solar is generally a relatively small line item within the overall development budget.

Available incentives and rebates may also reduce the upfront cost and shorten the payback period. Their impact depends on the project, the owner’s eligibility and the programs available, so they need to be confirmed before being included in the budget.

Federal Objective

Overall, we see this change as a positive step toward more sustainable buildings and cleaner energy. On-site solar can reduce the electricity a building draws from the grid when it is generating, while improved energy efficiency reduces consumption.

Better energy performance can also support stronger long-term operating results and potentially make a building more attractive to a future buyer. Whether that translates into a lower cap rate will depend on market conditions and the property itself. The challenge for developers is making the project feasible from the outset.

This article provides general information as of October 13, 2026. Eligibility and financing terms depend on the project and the applicable CMHC and lender requirements.