The regulation of investment by foreign individuals and entities in Australia, including in the energy sector, is regulated by the Treasurer of the Commonwealth (through the Foreign Investment Review Board (FIRB)) under a framework governed by the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).
Recent changes to the FIRB landscape have shifted FIRB considerations from a compliance obligation to a key transaction and business issue. It is now even more important for foreign owned renewable energy project developers and investors to:
- consider the current FIRB requirements as early as possible in any proposed transaction; and
- reset their development methods to comply with the revised FIRB landscape.
The FIRB game has changed, and developers need to adapt business strategy to comply – otherwise put at risk millions spent on project development.
The end of “land banking”?
FIRB released Guidance Note 4 in July 2021 which, at the time, heralded significant changes to the application of the Foreign Investment Regime to renewable energy developments, including imposing conditions requiring construction to commence within five years and prohibiting the disposal of the land until construction is complete. This regime presents challenges to foreign renewable energy project developers, particularly those that intend to seek third party investment in the projects they develop.
Does the Foreign Investment Regime apply?
The Foreign Investment Regime will apply to most renewable energy projects and businesses. However, determining if applies or not is a critical first step (and one that is sometimes incorrectly assumed).In summary, investments by foreign persons in Australian entities, businesses or land will be captured by Australia’s foreign investment framework if the investment is a notifiable action, a notifiable national security action, a significant action, or a reviewable national security action (which is referred to as the ‘call-in power’). If an investment or action does not fall within one of these categories, then it is not subject to the regime.
There are important differences between these categories, including that:
- notifiable actions and notifiable national security actions require mandatory approval before undertaking the investment or transaction, whereas significant actions and reviewable national security actions do not require approval. However, FIRB can review the transaction later and, if the action is found to contravene the national interest or national security (as applicable), then FIRB can make orders including divestment orders; and
- notifiable actions and significant actions are based on a broad national interest test, whereas notifiable national security actions and reviewable national security actions are tested against a narrower national security test.
Land Development Conditions
Guidance Note 4, which was last updated in January 2024, makes it clear that the Treasurer will generally seek to ensure that agricultural land and vacant commercial land, acquired for the purpose of operating a wind or solar farm, is put to productive use within a reasonable timeframe and ‘land banking’ does not occur.
If an application to FIRB for such an investment is approved, it will generally be approved subject to the following conditions:
- a wind or solar farm being developed on the land;
- continuous construction of the proposed development commencing within five years of completing the purchase of the land; and
- the land not being sold, transferred, or otherwise disposed of, prior to the development being completed.
However, the Treasurer can impose any condition(s) that are considered necessary to protect the national interest. ‘National interest’ is viewed through the lens of the broad, seemingly limitless national interest test which considers factors such as the impact on the economy, competition, tax, the investor’s character and national security. Helpfully, FIRB has indicated that it will endeavour to ensure that any conditions that it imposes strike a balance between enabling commercial objectives to be realised while ensuring that the land is put to productive use.
Zero thresholds for “national security” actions
There is a $0 monetary screening threshold that applies to any investment that constitutes a notifiable national security action or a reviewable national security action. This means that any investment that falls within one of those categories will be captured by the Foreign Investment Regime.
What is a notifiable national security action?
A notifiable national security action is one of the following actions:
| Category | Comment |
| Starting a ‘national security business’ | Renewable energy projects will most likely be national security businesses. |
| Acquiring a direct interest (usually 10%+) in a ‘national security business’ or in an entity that carries on a ‘national security business’ | A ‘National Security Business’ is a business which if disrupted or carried out in a particular way may cause a national security risk. Generally, this involves a ‘critical infrastructure asset’ which covers assets in 11 sectors as set out in the Security of Critical Infrastructure Act 2018 (Cth) (which was amended in December 2021). These sectors include electricity, gas, water and sewerage, energy, communications, data storage or processing, higher education, and defence. The ‘National Security Business’ must be publicly known or known to the public upon the making of reasonable inquiries. |
| Acquiring an interest in ‘national security land’ | National security land is generally land which is owned or occupied by defence, including buildings and structures. It also includes defence prohibited areas and land in which an agency in the national intelligence community has an interest if the existence of the interest is publicly known or could be known upon the making of reasonable inquiries. |
What is a reviewable national security action?
A reviewable national security action is one expected to give a foreign person potential influence and rights of an entity or business or the right to occupy land. In general terms, it captures investments where an interest of more than 10% is being acquired which is not otherwise caught by one of the other categories. There are approximately nine scenarios where this arises and, in practice, the outcome of this category is to give the Treasurer a default ability to review investments in sensitive sectors that may pose national security concerns, such as New Energy.
A person is not required to notify the Treasurer before taking a reviewable national security action. However, the Treasurer can exercise its ‘call-in’ power for up to 10 years after the transaction which allows the Treasurer to make orders where the action is contrary to national security. This ‘call-in’ power can be extinguished by voluntarily applying for FIRB approval, in which case the transaction cannot proceed until that approval has been obtained or the statutory timeframe for making a decision has otherwise lapsed.
Mandatory or voluntary notification?
There are various mandatory and voluntary notifications to consider in the New Energy sector. FIRB’s Guidance Note 8, which was last updated in July 2023, explains how FIRB will look to exercise its powers under the national security actions.
In the Renewable Energy sector, FIRB has provided guidance that the following investments will either trigger a mandatory requirement to notify FIRB or will be on their radar for exercising the call-in power, in which case they encourage voluntary notification:
| Mandatory Notification | Voluntary Notification |
A foreign person must seek foreign investment approval prior to starting a business, or acquiring a direct interest in an entity that owns or operates a:
|
Foreign persons proposing to invest in an energy retailer (gas or electricity) where the foreign person would subsequently hold interests in energy retailers with more than 100,000 customers are also encouraged to seek foreign investment approval. |
