The Committee on Foreign Investment in the United States, known as CFIUS, was formed for the purpose of permitting the President to determine the effect on national security of a transaction that results in foreign control of a US business. Foreign investments in domestic wind energy generation projects may come under scrutiny, and parties to such transactions must be mindful that CFIUS has the power to ‘impose, monitor and enforce mitigation agreements or conditions’ on such transactions.
Richard G. Reinis a counsel in the Century City office of Steptoe & Johnson LLP examines what this means for the renewables sector. This issue has gained particular prominence with the new administration’s support of alternative energy in the stimulus package and otherwise, and new wind energy projects are expected to be under way this year and for years to come. In order to continue this growth, however, the wind energy industry requires financial investment, much of which will come from foreign investors.
The American Wind Energy Association (AWEA) estimates that in 2008, wind energy accounted for an investment in the US economy of $17bn. Much of this funding came from Europe, where wind plays a much more important role in electricity supply. With this country’s open investment environment, US industry has always enjoyed foreign investment throughout the economy, and the wind energy sector is no different. Two years ago, European utilities, with a large assist from easy credit and a strong Euro, were very active in the American market, acquiring development companies at high multiples just to gain a foothold in this market. That has changed dramatically, but interest continues, especially in wind energy projects that will permit high-quality, smaller investments.
Such investments require an understanding of CFIUS regulations. Although it has been around for decades, CFIUS was most notably in the public eye in the wake of the Dubai Ports World deal. The CFIUS statute authorizes the President to investigate the impact on US national security of mergers, acquisitions, and takeovers by foreign persons.
If a transaction would result in an impairment of national security that could not be mitigated by agreement with the parties, the President may block the transaction or order divestiture of an already-completed deal. This power may be exercised long after the deal has closed, and might occur when unwinding a deal would be very costly. The probability of such an outcome is low, however, and the President has only once blocked a transaction under this provision.