Renewables and the French FI regime: why keep filing?
Investors active on the French renewables market have learned from experience that, in most cases, when they file for approval under the foreign investment rules, they ultimately get a ruling confirming that the transaction is not captured by the rules “as of today”.
So why keep filing then?
The usual answer is that almost all transactions are considered as falling outside the scope of the rules, but not all of them. Yet cases where an actual authorisation has been required are so rare that it is very hard to determine on what criteria those decisions are based, and the French State has not issued any form of guidance so far – an unfortunate feature of many foreign investment control regimes around the globe, where regulators are providing limited guidance on how they approach cases.
Given that the French review process is quite quick, investors usually choose to file to make sure their investment remains viable, as failure to comply with French FDI rules results, inter alia, in transactions being null and void as a matter of law. The filings are, ultimately, the M&A equivalent of making sure the seller has valid title in real estate deals.
This has become standard practice and should not change in the short term. Indeed, new rules will come into force on 1 January 2022 which will extend foreign investment control to R&D activities relating to technologies involved in the production of renewable energy, leading to more filings and making the need to file clearer.
This extension of the scope of the rules shows an increased interest in the protection of activities that are essential for the greening of the French energy mix. France aims to source 50% of its energy from renewable sources by 2035, which will require a certain degree of control over the players that will become key in a rapidly changing energy market (compared to the current situation where the former national monopoly generates around 90% of the total output). This development is part of a broader trend in European foreign investment control regimes, in line with the policy goal of reaching carbon neutrality in the next decade and we see comparable changes being implemented in other laws or authorities’ practical approach to assessing or calling in transactions.
The new rules also contain a number of helpful clarifications to the list of information and documents that need to be provided in notifications (across all sectors). The update of this list was necessary to comply with the requirements of EU Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union, but it should have a limited impact in practice.
This expansion of foreign investment control rules and enforcement in the energy sector is not specific to France. Indeed, the type of energy transactions likely to be caught by foreign investment rules has broadened significantly in a number of jurisdictions. Consequently, as foreign investment control increases, prohibitions may be more likely to occur, depending on the identity of the investor and the sensitivity of the products/services at stake (see our previous blog post on the energy sector).