Guidance

Applicability of the National Security and Investment Act 2021 to new build downstream gas and electricity assets

Updated 6 February 2024

This guidance is to help developers of new build downstream gas and electricity infrastructure to understand the scope of the National Security and Investment Act 2021 (the NSI Act).

Companies operating in the downstream gas and electricity sector should be aware of the NSI Act when acquiring, selling and developing qualifying entities and assets. Please note that this guidance relates to new build infrastructure only. It does not cover the acquisition of entities, or the acquisition of existing assets under the NSI Act.

This guidance covers:

• a summary of the NSI Act
• an explanation of qualifying assets in the downstream gas and electricity sectors, and qualifying acquisitions relating to new build assets
• when you can voluntarily notify the government about qualifying acquisitions relating to new build downstream gas and electricity infrastructure
• examples of acquisitions relating to new build downstream gas and electricity infrastructure that are in scope

Please also refer to:

• the more general guidance on the NSI Act, including on its application to asset acquisitions
• in particular the guidance on notifiable acquisitions for particular types of entity acquisitions requiring mandatory notification
• guidance on submitting a notification

Summary of the NSI Act

The government can scrutinise and intervene in certain acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security. The government can impose certain conditions on an acquisition, or, if necessary, unwind or block it, although the government expects to do this rarely.

These rules fall under the National Security and Investment (NSI) Act which came into force on 4 January 2022.

The rules cover acquisitions of certain entities and assets, known as qualifying entities and assets. Examples of new build infrastructure in the downstream gas and electricity sectors that are covered are given in this guidance.

The government can call in an acquisition for assessment if it reasonably suspects that it is an acquisition that has given rise to, or may give rise to, a risk to national security. This applies whether the acquisition has been completed or is still in progress or contemplation. However, it is not possible to call in and assess acquisitions completed before 12 November 2020.

As outlined in the guidance on acquisitions, the Secretary of State can exercise the power to give a call-in notice under the NSI Act, where there is a reasonable suspicion that the acquisition has given, or may give, rise to a national security risk. This power will only be used to safeguard the UK’s national security and will not be used arbitrarily to interfere with the development of newbuild infrastructure.

How the rules work

The rules only apply to qualifying acquisitions. These are referred to as trigger events in the Act.

For new build gas and electricity infrastructure, your acquisition is a qualifying acquisition if all of the following apply:

• you gain control of a qualifying asset (this term is explained below) by acquiring a right or interest in the asset
• the asset you are acquiring is used in connection with activities carried out in the United Kingdom or it is used in connection with the supply of goods or services in the United Kingdom
• you are able to use a qualifying asset, or direct or control its use, or you are able to do so more than you could prior to the acquisition

What is a qualifying asset?

Qualifying assets include land, tangible, moveable property, and ideas, information or techniques which have industrial, commercial or other economic value (‘intellectual property’).

Examples of qualifying assets in the downstream gas and electricity sectors therefore include (but are not limited to):

• new transmission infrastructure
• new electricity generation infrastructure
• new distribution infrastructure
• new gas processing infrastructure
• new gas import or export facilities
• new energy storage infrastructure

Check the level of control you have acquired, or will acquire, over the qualifying asset

If you are acquiring a qualifying asset that is that will be used in connection with activities carried out in the UK or is used in connection with the supply of goods or services in the UK, you will need to check if the level of control you have acquired, or will acquire, could bring it in scope of the rules.

Your acquisition is in scope of the rules if you acquire a right or interest in an asset, and the level of control you acquire means you are able to use, or direct or control the use, of that asset, or are able to do so more than you could prior to the acquisition.

In the context of new build downstream gas and electricity infrastructure, you acquire a right in an asset when you acquire the right to operate the asset and/or connect it to the network. The right to operate the asset could be acquired through (but is not limited to) the grant of an operating licence, a licence modification, an operating contract or network connection agreement.

Check if you need to tell the government about your acquisition

Acquisition of assets are not subject to mandatory notification under the NSI Act. You are not legally required to tell the government about your qualifying acquisition if it is not covered by a mandatory notification.

However, the government can ‘call in’ a qualifying asset acquisition for assessment if it is reasonably suspected that the acquisition gives rise to, or may give rise to, a risk to national security. All cases will be considered on an individual basis.

You can submit a voluntary notification if you are a party to a planned qualifying acquisition that is not covered by mandatory notification and want to find out if the government is going to call it in.

A call-in or voluntary notification can occur where arrangements are in progress or contemplation, which if carried into effect, will result in an acquisition of control that may give rise to a risk to national security once the asset is built and operational. In practice, this means that call-in or notification can occur on application for a right to operate the asset even where the asset has not yet been constructed.

Voluntary notification process

• once a complete notification has been accepted, the government has 30 working days to review the acquisition and provide clearance or call in the acquisition for a national security assessment. If the acquisition is called in, the government has 30 working days to complete its national security assessment, with an additional 45 working days if more time is needed. After this, a further voluntary period can be agreed with the acquirer. If the government clears your acquisition, it cannot investigate it again, unless the decision was based on false or misleading information
• in deciding whether to voluntarily notify, parties may be assisted by the NSI Section 3 Statement which provides further information on how the government expects to use its call-in power and assess qualifying acquisitions
• market guidance notes will also be published within 6 months of commencement of the Act and will draw on analysis of notifications received over time, as well as market monitoring intelligence, to help parties in deciding whether to voluntarily notify
• you can contact the Investment Security Unit (ISU) for general enquiries about the Act on [email protected].

If the government decides to assess your qualifying acquisition for a national security risk (calling in)

You will be told by the government if it is assessing your acquisition for a national security risk. This is known as ‘calling in’ the acquisition. A qualifying acquisition may be called in after you have submitted a notification or because it comes to the attention of the government through market monitoring or stakeholder engagement. The government is only able to do this if it has a reasonable suspicion that the acquisition may pose a risk to national security.

Scenarios of acquisitions for new downstream gas and electricity infrastructure

The hypothetical examples below show qualifying acquisitions which the government will be able to call in for assessment if it reasonably suspects the acquisition has given rise, or may give rise, to a national security risk.

Please note that these scenarios relate to new build infrastructure only. They do not cover the acquisition of entities, or the acquisition of existing assets under the NSI Act.

The NSI Section 3 statement provides further information on how the government expects to use its call-in power and assess qualifying acquisitions.

Example 1

A private company applies to Ofgem for a generation licence to enable them to operate an offshore wind farm. This asset has not yet been constructed, and the licence has not yet been granted by Ofgem.

The government may be able to call in this contemplated acquisition for assessment if it reasonably suspects the acquisition may give rise to a risk to national security. This is because this scenario is a contemplated qualifying asset acquisition; in other words, the application for the licence means that arrangements are in progress which if carried into effect will result in an acquisition of control over the asset once built. The granting of the license is an acquisition of control over a qualifying asset.

You are not legally required to notify the government in this scenario because mandatory notification requirements do not apply to acquisitions of control over qualifying assets.

Example 2

A consortium comprised of three private companies is investing in a new energy storage project through a newly established UK company. The asset has not yet been constructed but the UK company, on behalf of its ultimate beneficial owners, has submitted an application to National Grid for a network connection agreement.

The government may be able to call in this contemplated acquisition for assessment if it reasonably suspects the acquisition may give rise to a risk to national security. This is because this scenario is a contemplated qualifying asset acquisition; in other words, the application for the network connection agreement means that arrangements are in progress which if carried into effect will result in an acquisition of control over the asset once built. The grant of the network connection agreement is an acquisition of control over a qualifying asset.

You are not legally required to notify the government in this scenario because mandatory notification requirements do not apply to acquisitions of control over qualifying assets.

Example 3

A private company bids into a tender round that will result in the grant of a licence or contract which would allow them to build, own and operate an asset on the electricity network. The asset has not yet been constructed and the company has not yet been selected as the winning bidder.

The government may be able to call in this contemplated acquisition for assessment if it reasonably suspects the acquisition may give rise to a risk to national security. This is because this scenario is a contemplated qualifying asset acquisition; in other words, entering into a tender round means that arrangements are in progress which if carried into effect will result in an acquisition of control over the asset once built. Winning the tender and acquiring a licence or contract is an acquisition of control over a qualifying asset.

You are not legally required to notify the government in this scenario because mandatory notification requirements do not apply to acquisitions of control over qualifying assets.