Foreign investment approvals for renewable energy infrastructure projects

In recent months there has been media coverage of foreign investors experiencing difficulty in securing Foreign Investment Review Board (FIRB) approval to acquire energy infrastructure, in particular local electricity projects. For example, both the proposed acquisition by Beijing Energy International Holding of five solar farms from Lightsource BP, and the proposed acquisition of Tetris Energy by Alinta Energy (owned by Hong Kong-based Chow Tai Fook Enterprises), have stalled due to substantial delays in the FIRB approval process.

In this article, we explore the FIRB rules for a foreign person acquiring a solar or wind farm in Australia, which vary based on the classification of the underlying land and the nature of the investor. We have previously covered general FIRB approval requirements in more detail in this article.

FIRB approval requirements

At a high level, acquisition of a solar or wind farm will often be a land acquisition. Therefore, it will depend on the current use of the land being acquired and the nature of the foreign person.

Definitions

Under the Foreign Acquisitions and Takeovers Act 1975 (Act) and the Foreign Acquisitions and Takeovers Regulation 2015 (Regulations), a wind or solar power station means a wind power station or solar electricity generation system which is recognised as an accredited power station as defined in the Renewable Energy (Electricity) Act 2000 and includes each component of that solar electricity generation system or wind power station.

Type of land and applicable monetary thresholds

While wind and solar farms are often located on land which would otherwise be considered agricultural land, there are rules under the Act and Regulations which indicate that the land may be classified differently depending on the existing use of that land and the stage of development of the wind or solar power station.

The following table summarises the land classification, based on the various applicable factors, as well as the applicable monetary threshold. It assumes that the land in question will not have any residential dwellings or commercial buildings on it, given the low likelihood that this would occur in practice.

Foreign government investors

Separately, if the acquirer is considered a foreign government investor, the current monetary threshold is zero regardless of the type of land noted above, i.e. FIRB approval must be obtained for the transaction.

Generally, a "foreign government investor" is defined as a foreign government, a separate government entity, or a corporation, trust, or partnership in which a foreign government holds a substantial interest of 20 per cent or more, or where multiple foreign governments collectively hold an aggregate interest of 40 per cent or more. This includes interests traced up the chain of ownership, so for example, an Australian subsidiary would be considered a foreign government investor if it is substantially owned by a foreign entity, which in turn is substantially owned by a foreign government.

However, there are some exceptions if a foreign government investor only has a passive interest in the entity and is not able to influence any individual investment decisions, or the management of any individual investments or the entity.

Development Conditions

If FIRB approval is granted for the acquisition of an undeveloped wind or solar farm, FIRB is likely to impose conditions on the acquisition to prevent "land banking". The conditions usually include that:

• a wind or solar farm is developed on the land;
• continuous construction of the proposed development must commence within five years of completing the purchase of the land; and
• the land must not be sold, transferred, or otherwise disposed of, prior to the development being completed.

Commentary

In our view, the current rules on the acquisition of existing and proposed wind and solar farms do not lend themselves to efficient investment. Some issues we encounter include:

• Classification of land: There is some inconsistency as developed projects are treated as developed commercial land which, due to the high monetary thresholds, often mean no FIRB approval is required. However, where construction has not yet occurred, the land on which the wind or solar farm will be built could be considered agricultural or vacant commercial land, which would often trigger a FIRB approval requirement.
• Expansion projects: A similar issue arises for an expansion of an existing wind or solar farm project, where it may be that the first stage has been built, while subsequent stages are scheduled for later construction, meaning the land earmarked for these subsequent stages would be considered agricultural or vacant commercial land with the lower applicable monetary thresholds.
• Development conditions: The typical development conditions noted above can be onerous and may not align with the practicalities of developing large scale renewable energy projects. Adopting the same example of an expansion of an existing wind or solar farm project where development is scheduled to occur in stages, foreign investors may find difficulty in meeting the requirement to commence continuous construction of the proposed development within five years of purchase.
• National security business: The acquisition of an Australian company which owns and operates an existing solar or wind farm may be considered an acquisition of a "national security business", i.e. a business that, if disrupted or carried out in a particular way, may create national security risks. Such a transaction would attract a zero monetary threshold, meaning that FIRB approval would be required, notwithstanding that the acquisition of the underlying land itself may attract a higher monetary threshold.

In light of these complexities, and as the foreign investment framework relating to the acquisition of electricity projects is constantly evolving, it is essential to seek specific legal advice and consider all relevant factors to determine if FIRB approval for a proposed acquisition of a wind or solar farm is required.