CRA considers that a hydro-electric royalty does not qualify as being free from GST/HST, as water does not produce electricity

ETA s. 162(2)(c) deems the supply of "an amount computed by reference to…the value of production from, any…resource" to not be a supply, so that such royalty payments are not subject ot HST or GST. A "resource" is effectively defined to include water. Nonetheless, CRA considers that "water does not produce electricity nor is electricity a product of water," so that a royalty on revenues from a hydro-electric facility is subject to HST or GST.

Neal Armstrong. Summary of 21 July 2014 Ruling 142194 under ETA, s. 162(2).