Renewable Energy Deals Targeted for More Scrutiny in New Trade Report
The renewable energy industry, now designated as a technology and innovation-related area of special concern to the protection of the US industrial and scientific base, is one of seven sectors that the United States Trade Representative recently identified as being of significant national security concern.
Foreign acquisitions and investments in the renewable energy industry, including wind, solar, and hydroelectric power, have been targeted for additional scrutiny by the Trump administration in the voluminous report issued March 22 by the White House Office of the United States Trade Representative (USTR). The USTR’s primary concern in its investigation was with acquisitions and investments related to technology transfer, intellectual property, and innovation in seven industry sectors that it specifically identified as being of significant national security concern. Renewable energy is one of the seven sectors highlighted for increased scrutiny, through expanded reviews of certain types of deals by the Committee on Foreign Investment in the United States (CFIUS). While the USTR report focused on Chinese acquisitions and investments, the identification of renewable energy as one of the seven main industry sectors of concern means that acquisitions and investments by entities in other foreign nations may also be subject to heightened scrutiny by CFIUS. This Morgan Lewis LawFlash by our CFIUS Group summarizes the USTR report and provides links to the report and to the Presidential Memorandum also issued March 22, directing certain actions in furtherance of the USTR’s recommendations.
Renewable energy acquisitions have been filed for review by CFIUS in the past, but in some cases filings for review of renewable energy foreign acquisitions and investments have not been considered warranted by the parties, and CFIUS review often has not been considered in deal planning. The USTR report broadens the foreign acquisitions or investments of interest for CFIUS reviews, and signals the interest in the industry, by its designation of renewable energy as a technology and innovation-related area of special concern to protection of the US industrial and scientific base (p. 100-102 of the USTR report). Consequently, corporate counsel for both foreign buyers/investors and sellers need to consider whether proposed acquisitions or investments, by entities from any foreign nation, properly should be filed for review, and the timelines for CFIUS reviews be built into the closing timeline for renewable energy transactions.
The USTR report discussed renewable energy acquisitions and investments in detail in its report (p. 134-38), with detailed discussions of examples of acquisitions of concern. Acquisitions of US wind energy projects also were discussed in detail. The range of deals potentially impacted by the need to consider CFIUS filings in view of the express interest by the government in acquisitions and investments in US renewable energy businesses thus is now considerably heightened.
CFIUS jurisdiction extends not only to complete acquisitions but also to equity investments by which a foreign entity obtains some control over the US renewable energy business. This jurisdiction applies even where the US business is controlled by another foreign entity. There is a low standard for determining whether such control would exist, based on several factors relating to the ability to influence significant operations decisions of the US business, including appointment/dismissal of officers and major investments/expenditures. There is no threshold dollar amount of investment or percentage of equity acquired that establishes control. Consequently, even investments in renewable energy businesses may be affected by this broadening of interest in the industry, and should be considered by parties as part of deal due diligence and negotiations of investment and acquisition agreements.