Foreign Equipment and Ownership Restrictions in Energy Projects

This CLE webinar will navigate federal and state restrictions affecting foreign-produced grid equipment and foreign ownership or investment in energy projects. The panel will examine how the FCC Covered List, Executive Order 14421, state critical infrastructure laws, and CFIUS apply different tests to equipment, suppliers, ownership, investment, and grid access. The panel will also discuss supplier and ownership diligence and drafting supply and EPC agreements to address the risk of changing restrictions.

Foreign equipment and ownership restrictions affecting U.S. energy projects do not operate under a single standard. Equipment that can be used under one federal regulation may raise issues under another. Federal approval also may not solve additional restrictions under specific state law. Recent developments provide one example of the problem: The FCC recently restricted certain foreign-produced power inverters that use remote connectivity. Additionally, Executive Order 14421 authorizes the Department of Energy to restrict transactions involving foreign-produced bulk-power system equipment associated with Covered Foreign Entities where specific national security risks may present. Some states, including Texas and Louisiana, have adopted their own restrictions on foreign access to critical infrastructure.

The overlap between these regulatory frameworks may create challenging questions for project developers and their counsel. In GH America Energy v. Fohn, the Fifth Circuit held that federal CFIUS review did not preempt other Texas restrictions that had resulted in denying a Chinese-owned developer from obtaining an ERCOT interconnection. The decision emphasizes that federal review or regulatory mitigation may not resolve separate state law challenges. The multiple frameworks also may cause contracting issues. Executive Order 14421 permits the imposition of new conditions on certain equipment already installed, including possible isolation, disconnection, replacement, or removal. Supply agreements and EPC contracts may not clearly allocate the costs and risks now associated with this kind of post-installation prohibition or the related changes and restrictions to equipment approval and firmware/remote access technologies. Energy counsel must take into account these kinds of restrictions when reviewing equipment and suppliers, potential ownership structures, and when drafting project contracts, including how the parties will respond if a supplier or piece of equipment becomes restricted after an agreement is signed.

Listen as our panel discusses the overlapping federal and state requirements, supplier and ownership diligence, and contract provisions for allocating foreign equipment and ownership risk in energy projects.