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31/01/2025·3 mins to read
Refreshed overseas investment office guidance on energy projects
Land Information New Zealand has released updated guidance on solar and wind farms under the Overseas Investment Act 2005 (Act).
While the guidance does not contain anything new, and reflects the approach taken by the Overseas Investment Office (OIO) to renewable energy projects over the past few years, this consolidated guidance is a good reminder of the considerations that overseas investors should take into account when looking to invest in these types of energy development in New Zealand.
Land Tenure
The guidance analyses the different land tenure arrangements for solar and wind farms. As set out in our August 2023 FYI, Simpson Grierson - Overseas investment considerations for acquisition of land for renewable energy projects, the type of property arrangement is an important consideration and can impact on the ease of the OIO consent process.
Lease
A lease is an ideal arrangement for a solar farm. While OIO consent is required for leases of non-urban land of 10 years or more, it is reasonably straightforward to show there are sufficient benefits where significant development is taking place, particularly where there is no permanent loss of sensitive land from New Zealand ownership. Freehold acquisitions tend to require a greater level of benefits. It can also be easier, for a lease arrangement to obtain a farmland advertising exemption (discussed below).
Easement
An easement is an exempted interest under the Act and some operators have used easements for solar farms. The OIO has made it clear that, generally, an easement is not an accurate description of the rights required for a solar farm and, where the rights being granted either prevent the landowner from the enjoyment and control of the land or impose restrictions on the landowner’s use of the land, the interest being acquired (even if created by an easement instrument) it is unlikely to be considered an exempt interest by the OIO and consent will be required for foreign investors entering into these arrangements. However, easements are more suited to wind farms and there is the potential for foreign investors to acquire interests in these developments without OIO consent.
Farmland Advertising
As stated in our earlier FYI, the land for solar projects is likely to trigger a farmland advertising requirement, which arises in advance of an investor entering into any agreement to acquire an interest in land (including leases of 10 years or more). Because of the commercial risk of competitors gaining easy knowledge of suitable sites through public advertising after the investor has spent time and effort undertaking due diligence, the OIO is prepared to grant farmland advertising exemptions. These are easier to obtain for a leasehold interest than a freehold interest as the temporary use of the land can be reverted at the end of the lease and the underlying freehold of the land remains in New Zealand ownership.
Change of ownership
While the “benefit to New Zealand test” can be relatively easily satisfied for a new development (due to the capital investment, creation of jobs through construction and, to a lesser extent, the ongoing operation, supplying energy to the national grid and advancing government policy related to climate change and renewable energy), these benefits cannot usually be used for any change in ownership of an already developed solar farm.
As discussed in our March 2024 FYI, Simpson Grierson - Reduced risk of illiquid assets and passive overseas investment, these passive investments are an important part of New Zealand’s renewable energy goals so that capital can be recycled into new projects. The OIO’s new guidance signals that the reduced risk of illiquid assets (to avoid assets being stranded) will be an acceptable benefit to New Zealand.
The national interest test
Electricity generators with a total capacity of more than 250MW (taking into account existing generation assets) will trigger a national interest assessment where the Minister of Finance will consider, and may decline, an application for consent if the Minister considers the investment is “contrary to the national interest”. Accordingly, cumulative capacity needs to be considered before entering into a transaction or making an OIO application.
Expert advice
Given the Government’s 2024 signal that there will be changes to the Act to promote investment, we will keep you posted as to changes that impact energy and other foreign investment requirements.
This is a constantly changing landscape and it is important to have up to date information about the OIO process and the impact on transaction timing.
For further information about the OIO application process or to discuss the considerations for overseas investors and entities participating in the New Zealand renewable energy sector, please contact one of our experts.
Special thanks to Jasmine Feehan for assistance in writing this article.
