At the start of this year, the National Security and Investment Act (NSIA) came into force. On behalf of ICAEW, the Corporate Finance Faculty played an important role in the drafting of the legislation. The Act gives the Secretary of State powers to call in transactions it considers a potential risk to national security.
When a transaction falls under the scope of the NSIA, a buyer must notify the Secretary of State, who must approve the transaction before it can be completed. The Secretary of State has 30 working days from notification to review the transaction and decide on further assessment, or whether no further action is needed. Completing a ‘notifiable acquisition’ without the prior approval will render a transaction void – and civil and criminal penalties could be imposed.
The legislation specifically names 17 ‘sensitive’ sectors that fall under the scope of the new regime – energy is one.
Prior to Russia’s invasion of Ukraine the price of energy was rising, but since then the cost and security of supply has been thrust into the spotlight; if security of energy supply is under threat, so too is national security. Preventing state actors controlling UK energy supply will clearly be an issue. This all comes at a time when the UK, together with many other countries, is looking for investment in a post-carbon future as it aims for net zero by 2050.
Green question
Large institutional investors and utilities with a significant presence globally in renewable energy assets in the UK now must consider the application of the NSIA in these transactions. The NSIA is likely to impact a broad range of clean energy transactions, involving operational assets, regardless of the size of the target project.
The NSIA captures, among other things, certain ‘notifiable acquisitions’ completing on or after 4 January 2022. A notifiable acquisition takes place when a person gains control of a qualifying entity and that qualifying entity meets a ‘specified description’. A ‘qualifying entity’ is an entity that’s not an individual, so it includes companies, LLPs, partnerships, trusts and unincorporated associations.
The UK government published the Electric Vehicle Infrastructure Strategy, confirming £1.6bn of public funding for charging points. That’s the tip of the iceberg, though. It is estimated that there need to be 30,000 public EV charging points by 2030 and by that year, the revenue from those charging points will be £7bn.
Specified descriptions may be relevant to clean energy transactions, where the assets fall under the following areas (as defined in the NSIA):
- transmission and distribution assets and interconnectors;
- large generation projects; or
- large aggregation projects.
Even if the transaction does not fall into one of the specified descriptions above, it may fall under any of the other specified descriptions in the NSIA regulations, or it may otherwise be considered to pose a risk to national security and be subject to call-in.
The NSIA has certainly created a procedural hurdle for clean energy transactions. But the reality is that acquirers should be mindful of the underlying purpose of the act, which is to ensure that the national security interests of the UK are protected.
The switch to renewables is a long-term ambition for the UK government, as part of its Net Zero Strategy, the pathway to achieving net-zero emissions by 2050. Security of supply for the UK and its domestic and business consumers has been brought into sharp focus by Russia’s war in Ukraine and rising energy costs, because of the dependence on fossil fuels. There will undoubtedly be an international appetite to own power assets with their regular ‘guaranteed’ income streams.
BEIS has been keen to make clear in its guidance that “the call-in power will not be used to interfere arbitrarily with investment” and it “is not a system for screening all acquisitions in the economy”. While the war in Ukraine continues, and the global geopolitical situation remains uncertain, fuel security will continue to be a major concern for the government.
How big?
The NSIA regime may affect businesses planning to sell, buy or invest in:
- an entity that either holds a transmission, distribution or interconnection licence or would be required to hold a licence if it didn’t benefit from an exemption; or
- an individual generating project (regardless of technology) that has a total installed capacity of 100MW or more; or
- an entity that holds a portfolio of generating assets within Great Britain, which has (or will have after the proposed acquisition) an aggregate capacity of 1GW or more.