The funding was announced today in Summerside.
Premier Wade MacLauchlan says the province will cost-share in the project, with funding details to be announced soon.
MacLauchlan says he will meet with federal officials in Ottawa on Monday to discuss the project, which is expected to begin by the fall of 2016.
The government says the existing connection of two 100 megawatt lines is almost 40 years old and needs replacement.
It says a new 360 megawatt connection would provide customers with electricity security and the province with more flexibility for power purchase agreements.