The National Security and Investment Act 2021 became law on 29 April 2021. It introduces a major new screening regime for investment and M&A activity in relation to targets active in the UK, particularly in certain key sectors that will be subject to the Act's mandatory notification regime. This includes the energy sector.
The Government had initially identified 17 key sectors to which that regime would apply. The public consultation on the scope of those rules has now ended and, while the sectors remain unchanged, the Government's response has proposed some adjustments to the types of entities and activities that will be caught within each sector. The responses also offer a guide to the Government's current thinking on where it sees national security risks as most likely to arise, as well as on its appetite for allowing risk (for example, by rejecting proposals that the regime should be subject to a general de minimis financial threshold).
Let's look at the likely scope of the mandatory notification regime in relation to the energy sector, encompassing both electricity and oil & gas.
The Government has confirmed that retail electricity suppliers are not within the scope of the mandatory regime. The initial definition of entities that would be caught had included energy suppliers with at least 250,000 customers, as well as all "electricity undertakings that carry out the function of supply". The former has been removed entirely and the latter has been narrowed to include only 'Authorised Electricity Operators' that provide load via either: individual assets that have (or would have) a total installed capacity of at least 100MW; or assets that, if added to those of the acquirer and any related entities, would have a total installed capacity of at least 1GW (reduced from 2GW in the original definition). That amended definition also clarifies that it is limited to AEOs in Great Britain, presumably to avoid complications in relation to the Northern Ireland Protocol and the continued functioning of the Single Electricity Market on the island of Ireland.
The amended definitions also now include aggregators that control assets in Great Britain with a cumulated total capacity of at least 1GW, in addition to licensed transmission and distribution operators (electricity or gas), as well as owners / operators of interconnectors (also electricity or gas), long range gas storage and gas reception terminals.
On the oil & gas side, an entity that owns or operates terminals, upstream petroleum pipelines and infrastructure forming part of a petroleum production project will still be subject to mandatory notification if the infrastructure has a throughput in the previous year greater than 3,000,000 tonnes of oil equivalent. However, the Act will now also catch any "prospective" terminal, pipeline or infrastructure expected to handle that volume in its first year of operation. There is no explanation for that change, but presumably it is to ensure assets do not escape screening, just because they are sold before they become operational.
Entities involved in the supply of petroleum-based fuels (whether through importing, storage, production, distribution or delivery) will still be caught by the mandatory notification regime if they "provide or handle" more than 500,000 tonnes per annum, though owners of a downstream facility will now only be caught if the facility's capacity exceeds 50,000 tonnes (increased from 20,000 tonnes in the initial consultation).
The Government's consultation response is a mixed picture for the energy sector, narrowing the scope of the mandatory notification regime by removing retail suppliers and increasing the capacity threshold at which downstream oil and gas facilities will be caught, but widening it in relation to the cumulative capacity threshold at which AEOs will be caught. Whatever the final position, the Act will remain likely to catch a large number of deals each year, while those that no longer fall within the mandatory notification regime will still be reviewable under the 'call-in' regime if necessary. The Act will therefore be a key consideration for many firms operating in the UK energy sector, whether they are looking to buy, sell or secure investment.
To hear more about the Act, and for an opportunity to ask questions, sign up to our webinar on 18 May.