Australia: Changes in FIRB approval requirements for renewable projects

Last Updated: 3 August 2017
Article by Raymond Lou

Key takeaways

  • Subject to one exception, acquisition of greenfield wind or solar farm projects will require prior FIRB approval, irrespective of the value of the land or project. The exception is if the land is currently being used wholly and exclusively for primary production, then a screening threshold of AU$15 million will continue to apply
  • New special rule for a foreign investor that is an owner or operator of one or more existing solar or wind projects in Australia – further acquisition of brownfield wind or solar farm projects will be subject to a higher screening threshold of AU$55 million or AU$252 million
  • There remains some uncertainty on whether a developed and fully contracted wind or solar farm could apply the higher AU$252 million screening threshold

Since the Australian government introduced the new agricultural land regime to the Foreign Investment Review Board (FIRB) approval process in 2015, there has been uncertainty around how the regime would apply to the development and acquisition of wind or solar farm projects in Australia, which are almost always constructed on paddocks or grazing land. In the absence of formal guidance from FIRB, most advisers have taken the more cautious approach of treating the acquisition of these projects as acquisition of interest in agricultural land, which is subject to a lower monetary screening threshold of AU$15 million (cumulative) and higher application fee.

The amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (FATR) that took effect on 1 July 2017 and new Guidance Note 50 sought to clarify the application of the agricultural land regime to wind or solar farms. This is explained in more detail in this update.

FIRB screening thresholds

The new Guidance Note 50 confirms that, subject to one exception, rural land used to develop solar or wind projects will be treated as vacant commercial land.1 This means that acquisition of solar or wind projects during the development phase or immediately prior to financial close will require prior approval under the FIRB regime irrespective of the value of the land or project, as acquisition of interest in vacant commercial land is subject to a AU$0 screening threshold.

In addition to being vacant commercial land, the project site may also be classified as agricultural land and attract a higher FIRB application fee. However, Guidance Note 50 provides that land will not be classified as agricultural land if:

  1. it is not currently used wholly or predominately for a primary production business; and
  2. one of the following conditions is met:
    • an application has been made to a government authority for approval (including accreditation) for establishing or operating a wind or solar power station to be located on the land (whether on or beneath the surface); or
    • an approval of a government authority (including accreditation) is in force allowing a wind or solar power station to be established or operated on the land (whether on or beneath the surface).2

There is an exception if the land is currently being used 'wholly and exclusively' for primary production. In this case, the land will be classified only as agricultural land and a screening threshold of AU$15 million will apply. Consequently, acquisition of smaller solar or wind projects developed on such land will be exempt from the FIRB regime if the calculation of the aggregate rent or land value does not exceed AU$15 million (calculated on a cumulative basis).

The classification of land used for wind or solar projects, and their relevant screening thresholds, after 1 July 2017 are summarised in the table below:

Current land use Classification of land FIRB screening threshold
Greenfield projects
Wholly and exclusively used for primary production Agricultural land AU$15m (cumulative)
Predominantly used for primary production Vacant commercial land and agricultural land AU$0 (but subject to higher application fee)
Barren or only partly used for primary production (provided an application is made to, or approval received, from a government authority) Vacant commercial land AU$0
Brownfield projects
Predominantly used for primary production Non-vacant commercial land and agricultural land AU$15m (cumulative)
Only solar or wind farm(s), or only partly used for primary production Non-vacant commercial land AU$55 million or AU$252 million
Brownfield projects (acquired by solar/wind farm owner or operator)
Any Non-vacant commercial land AU$55 million or AU$252 million

Special rule for owner or operator of wind or solar projects

The 2017 amendment adds a new subsection 40(2A) to the FATR that applies only to an owner or operator of existing wind or solar farm(s) in Australia. It states that:

Wind or solar power station owners and operators
(2A) An owner or operator, or an associate of an owner or operator, of a wind or solar power station, who takes an action relating to an interest in agricultural land for the sole purpose of acquiring or operating a wind or solar power station already located on the land (whether on or beneath the surface) may, for the purposes of subsections 52(2) and (3) of the Act, disregard the fact that the land is agricultural land.

Wind or solar power station is defined by reference to the definition of 'accredited power station' in the Renewable Energy (Electricity) Act 2000, which applies to a project has completed construction and received accreditation from the Clean Energy Regulator.

The effect of the new regulation is that, where a foreign investor that is an owner or operator of one or more existing wind or solar farm projects in Australia, and the investor wishes to acquire an additional developed wind or solar farm project, the higher screening threshold of AU$55 million or AU$252 million (indexed annually) will apply even if the acquisition involves acquisition of interest in agricultural land. The lower threshold of AU$55 million will apply if the project site is used for the purposes of generating electricity 'to the public'. There remains some uncertainty as to whether a fully contracted wind or solar farm that has a PPA with a public utility company can apply a higher threshold of AU$252 million on the basis it is not generating electricity to the public.

The special regulation only applies for the purposes of determining whether the threshold test for the acquisition is met. That means if the threshold test is met and the acquisition involves acquisition of interest in agricultural land, the higher application fee under the agricultural land regime will still apply.

FIRB application fees

The 2017 amendments also introduced a simplified fee structure for FIRB applicants. The application to solar or wind farm projects are set out below:

Current land use Project type Fee payable
Exclusive or predominantly primary production business Developed or undeveloped projects

AU$2,000 if consideration is less than AU$2 million

AU$25,300 if consideration is between AU$2 million and AU$10 million

AU$101,500 if the consideration is more than AU$10 million

Footnotes

1 We have assumed there is no substantive permanent building on the land – this will usually be the case for rural land.
2 The second requirement will be satisfied if a development approval application has been submitted with the relevant state department (or approval received), as this is usually the first government approval that will be granted in connection with the development of a wind or solar farm.

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Raymond Lou
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