The Overseas Investment Office (OIO) has released guidance on overseas investment in solar and wind farms under the Overseas Investment Act 2005 (OIA). You can find the guidance here.

Bringing together new and previously-published information, the guidance provides investors with a neat summary of the treatment of the two renewables by the OIO. It indicates a willingness by the regulator to smooth the pathway for overseas investors in renewables – a welcome approach given the level of interest in solar farms and the Government’s drive to double the country’s renewable energy production.

We have worked on a number of renewable energy projects and have extensive experience advising on the overseas investment rules. Please get in touch with one of our experts if you are considering investing in the sector or need help navigating the renewables regulatory landscape.

Solar and wind farms are same same - but different

The treatment by the OIO of the two renewables differs, with solar farm investments facing higher scrutiny than wind farm investments. Solar farms do not allow for as many complimentary land uses and tend to require more land to operate compared to wind farms, resulting in greater scrutiny at a regulatory level. This risk presents an element of uncertainty for overseas investors in large-scale solar, affecting both direct overseas investment and local developers relying on funding from overseas (which can still be caught by the OIA). 

The different treatment of solar and wind investments is due to the OIO’s view on the nature of the property rights suitable for the different types of infrastructure – specifically, the suitability of easements.

While not the coolest of legal rights, easements are having their time in the sun when it comes to the overseas investment regime. The benefit of structuring property rights as easements is that they are exempt from needing OIA consent for investment in “sensitive land”. Large-scale wind farms have relied on easements for many years - and accordingly have not had to seek consent for investment in “sensitive land”.

In its guidance, the OIO says that to date, every solar farm arrangement that has crossed their desks has, in their view, amounted to more than an easement and OIA consent has been required - even where the parties have agreed and documented the arrangement as an easement. The OIO can (and does) look through easement arrangements where they consider the “easement” is not genuine. The OIO’s view is that easements are not usually appropriate for large-scale solar farms because the rights being granted to the developer are so extensive or invasive that they oust the landowner from enjoyment of its land and as such are not genuine easements, which are not intended for exclusive land uses. 

In the context of a large-scale solar farm, property rights that are described and documented as easements are more likely to be leases, and, accordingly, require OIO consent.

This results in an imbalance between the two types of renewable energy – in most cases, overseas investors in solar farms will need to spend more on the regulatory consent process. With increasing interest in solar farm developments, the inevitable need for overseas capital to fund them and the Government’s policy to double renewable energy production, we are in a good position to be encouraging further overseas investment in the solar sector. However, this imbalance, and the additional burden on solar farms, may unintentionally shade future investment in the solar energy industry in New Zealand. 

Farm land advertising exemptions more likely for solar and wind farms 

Typically, developers will engage in long and commercially sensitive due diligence phases to identify the areas of land suitable for placing wind or solar infrastructure. And usually, that land is farmland. To acquire an interest in farmland, the overseas investment regime imposes a further hurdle on overseas investors with the “farmland advertising rules”. After making a significant investment in due diligence, an overseas investor must ensure that the land has been advertised on the open market for 30 working days before entering into a binding sale/development agreement. 

The OIO has recognised the incompatibility of the farm land advertising requirement with the commercial reality of this type of investment, with the guidance confirming that exemptions from the farm land advertising regime are available for solar and wind investors. A number of investments have been granted exemptions from the farm land advertising requirement, which is encouraging for solar investors – though overseas investors still need to pay the exemption application fee, and it does not exempt investors from the need to seek OIO consent.

The approach to the national interest test

The new guidance outlines the circumstances under which a "national interest" assessment for an investment in solar or wind farms may be triggered. Under the OIA, the responsible Minister has a broad discretion to deny consent to a transaction deemed contrary to the national interest.

A consent application may be classified as a transaction of national interest in two situations:

• If it meets certain criteria related to non-NZ government investors and/or "strategically important businesses" (SIB) (Section 20A of the OIA); or
• If the responsible Minister exercises their discretion to determine that the transaction is a transaction of national interest (Section 20B of the OIA).

A SIB includes existing electricity generators with a total generating capacity exceeding 250MW. Therefore, an established wind or solar farm exceeding 250MW would meet the SIB criteria. However, this status is only triggered once the 250MW threshold is reached. It is also of note that Section 20A applies only when a consent application is already required due to the acquisition involving sensitive land (or securities in an entity with an interest in sensitive land) already used to carry out an SIB, or where the transaction relates to significant business assets (i.e. over $100 million).

The guidance goes on to comment that the Minister’s discretion to deem a transaction to be of national interest under section 20B is likely to be triggered if “the development will exceed 250MW, or if the development will take the investor’s total generating capacity over 250MW for the first time”. 

The reference to the “development” of wind or solar farms means that, in essence, a forward looking SIB assessment (via Section 20B) will apply to greenfield projects (despite an acquisition of bare land not requiring an SIB assessment under 20A). Despite this, overseas investors looking to establish new wind or solar farms (or extend an existing farm) should take comfort that a national interest assessment should not, in most cases, present an impediment to developments for several reasons:

• it is not always the case that a national interest assessment would be required for greenfields projects, but it should be assumed that an assessment would be made if the development will exceed 250MW, or if the development will take the investor’s total generating capacity over 250MW for the first time; and
• the New Zealand Government’s energy strategy prioritises transitioning to a low-carbon economy and encouraging investment in renewable energy and quality developments are likely to be strongly encouraged.

The Government has taken welcome steps to reform the OIO regime as a whole, including cutting down assessment timeframes and narrowing the scope for ministerial review of applications, which has the broader effect of reducing costs for prospective investors. The approach the OIO is now taking with renewables goes some way to further smoothing the pathway for overseas investment in these specific energy sources as well. With some further refinements – which may need ministerial involvement – New Zealand may be able to capitalise on the increased interest in both renewables.

If you are looking to invest in renewable energy, or would like further information, get in touch with one of our experts.

This article was co-authored by Georgie Hughes (Solicitor) from our Real Estate team.