1. Introduction

Energy investments occupy a special position in modern economic law because energy infrastructure is simultaneously a commercial asset, essential public service, strategic resource, and national-security asset. Investments in electricity generation, transmission grids, oil and gas pipelines, LNG terminals, refineries, nuclear facilities, renewable-energy projects, batteries, critical minerals and energy-control systems may therefore receive greater governmental scrutiny than ordinary commercial investments.

National security review of energy investments refers to the legal process through which a government examines whether a proposed foreign investment, acquisition, merger, ownership change, or control arrangement could create risks to national security, public order, strategic autonomy, or continuity of energy supply.

The European Commission has specifically identified electricity and gas infrastructure as assets relevant to security of supply and documented national mechanisms including FDI screening, ownership restrictions and special governmental rights. (Energy)

The central legal problem is therefore to balance two objectives:

attracting capital and technology into the energy sector; and

preventing foreign control from creating unacceptable strategic vulnerabilities.

2. Meaning of National Security Review

National-security review is different from ordinary investment regulation.

Ordinary investment regulation generally asks:

Is the investor legally permitted to invest?

Does the investment satisfy foreign-investment limits?

Have licensing requirements been fulfilled?

Does the transaction satisfy competition law?

Are environmental requirements satisfied?

National-security review asks an additional question:

Could the investment give a foreign person or entity the ability to influence, disrupt, control or obtain sensitive information concerning assets essential to national security?

The review may therefore examine:

identity and nationality of the investor;

beneficial ownership;

government or state ownership;

ultimate controlling persons;

location of the energy asset;

proximity to defence installations;

access to strategic infrastructure;

cybersecurity implications;

control over electricity or gas networks;

access to sensitive operational data;

dependence on foreign technology;

critical-mineral supply chains;

ability to interrupt energy supplies;

links with foreign governments;

sanctions and geopolitical risks; and

whether the investor could obtain effective control even without majority ownership.

3. Why Energy Investments Raise National-Security Concerns

Energy infrastructure is particularly sensitive because modern states depend upon continuous electricity and fuel supplies.

A foreign acquisition of an ordinary manufacturing company may have limited national-security implications. Acquisition of a national electricity transmission network, however, can potentially affect millions of consumers and strategic industries.

Sensitive assets can include:

Electricity

transmission networks;

distribution networks;

system-control centres;

large generating stations;

electricity-storage systems;

interconnection infrastructure;

smart-grid systems.

Oil and Gas

pipelines;

LNG terminals;

refineries;

strategic petroleum storage;

gas-storage facilities;

offshore production infrastructure.

Nuclear Energy

Nuclear assets receive particularly intensive scrutiny because they involve:

nuclear materials;

dual-use technology;

national defence considerations;

radiation safety;

sensitive information;

long-term strategic infrastructure.

Renewable Energy

Renewables can also raise security issues where foreign investors obtain control over:

very large wind or solar portfolios;

electricity-storage infrastructure;

grid-connected control systems;

energy-management software;

critical minerals;

battery supply chains.

The important principle is that “renewable” does not automatically mean “non-strategic.”

4. National Security Versus Economic Security

Modern investment-screening systems increasingly recognize the connection between national security and economic security.

An investment may not involve military technology but may nevertheless create strategic dependence.

For example, a foreign investor controlling:

generation + transmission + storage + digital control systems

could potentially acquire significant influence over the functioning of an electricity system.

Consequently, contemporary screening frameworks increasingly consider:

supply-chain resilience;

critical infrastructure;

critical raw materials;

cybersecurity;

technological sovereignty;

energy independence.

The EU's revised FDI framework adopted in 2026 includes critical entities in energy, transport and digital infrastructure within the common minimum scope of screening. (Consilium)

5. India: Legal Framework

India does not operate through a single comprehensive statute titled “National Security Review of Energy Investments.” Instead, national-security considerations are incorporated into several legal and regulatory mechanisms. (Chambers Practice Guides)

Important instruments include:

(a) Foreign Exchange Management Act, 1999

FEMA provides the basic statutory framework for foreign investment transactions and permits the government to regulate foreign ownership.

(b) FDI Policy

Foreign investment is divided broadly between:

automatic route; and

government approval route.

Most investments are subject to the automatic route, while sensitive areas can require governmental approval. (U.S. Department of State)

(c) Press Note 3 of 2020

One of India's most significant security-oriented investment measures is Press Note 3 (2020).

It requires prior government approval where an investment comes from an entity situated in a country sharing a land border with India, or where the beneficial owner of the investment is situated in such a country. (U.S. Department of State)

This represents a beneficial-ownership-based security screen, rather than merely examining the immediate corporate investor.

(d) Competition Act, 2002

Large acquisitions may require review by the Competition Commission of India (CCI).

The Electricity Act and competition legislation can operate simultaneously where an investment involves acquisition or control of electricity-sector assets. Section 60 of the Electricity Act also permits regulatory intervention where conduct or combinations adversely affect competition in the electricity market. (Chambers)

(e) Sector-specific regulation

Energy investments can additionally require:

electricity licences;

environmental approvals;

petroleum and natural-gas permissions;

nuclear-sector approvals;

land approvals;

grid approvals;

cybersecurity compliance; and

other sectoral permissions.

Thus, an energy acquisition may pass an FDI test but still require multiple independent regulatory approvals.

6. Key Elements of National Security Review

A. Identity of the Investor

The government may investigate not merely the acquiring company but its ultimate beneficial owner.

This is important because a company incorporated in one country may ultimately be controlled by:

a foreign state;

sovereign wealth fund;

state-owned enterprise;

military-linked entity; or

another foreign corporate group.

The legal focus is therefore increasingly on control and beneficial ownership rather than corporate nationality alone.

B. Nature of the Energy Asset

The greater the strategic importance of the asset, the greater the potential scrutiny.

For example:

This illustrates the risk-based approach to investment screening.

C. Location

Location can transform an otherwise ordinary energy investment into a security concern.

The classic example is Ralls Corporation v. Committee on Foreign Investment in the United States, involving Chinese-controlled acquisition of U.S. wind-farm project companies.

The wind projects were located near a U.S. Navy installation, and CFIUS identified national-security concerns. The President ultimately prohibited the transaction and ordered divestment. (Justia Law)

The case demonstrates that the physical location of an energy project can itself be relevant to national-security analysis.

7. Case Law: Ralls Corporation v. CFIUS

Facts

Ralls Corporation, a U.S. company owned by Chinese nationals, acquired four companies associated with wind-farm projects in Oregon.

The projects were located close to restricted U.S. military airspace.

CFIUS reviewed the transaction and identified national-security risks. The President subsequently prohibited the acquisition and required divestment. (FindLaw)

Legal Issue

Could the government prohibit the transaction on national-security grounds without providing the investor with full access to the evidence?

Decision

The U.S. Court of Appeals for the D.C. Circuit held that the investor was entitled to procedural protections concerning the evidence relied upon in making the determination.

Importantly, the court distinguished between:

judicial review of the substantive national-security judgment, and

judicial review of the procedure used to reach that judgment.

The court did not substitute its own national-security assessment for that of the executive branch. Instead, it emphasized procedural due process. (FindLaw)

Significance

Ralls establishes an important principle:

National security may justify extensive governmental discretion, but the exercise of that discretion can still be subject to procedural safeguards.

It is particularly important for energy-law students because the underlying asset was wind-energy infrastructure.

8. Case Law: Indian Power Investment Litigation

Indian courts have also considered the legal environment surrounding foreign investment in electricity.

In Indian Council for Enviro-Legal Action v. Union of India, the Karnataka High Court considered the development of private and foreign investment in power generation, including the proposed Cogentrix/Mangalore power project. The case illustrates how foreign investment in electricity operates within a broader framework of governmental approvals, environmental regulation and electricity-sector controls. (Indian Kanoon)

Similarly, Ramdas Shriniwas Nayak v. Union of India arose in the context of the Dabhol power project and examined governmental arrangements surrounding private participation in electricity generation.

The Supreme Court recognized the government's policy of encouraging private participation in power generation and found that the negotiated power-purchase arrangement was not, merely because it was negotiated, inherently illegal. (Indian Kanoon)

These cases demonstrate that Indian energy investment law historically developed around investment facilitation combined with governmental oversight, rather than treating foreign participation itself as inherently contrary to national interest.

9. Competition Law and National Security

National security review should not be confused with competition review.

A transaction may create:

Competition risk:
The acquisition substantially reduces competition.

Security risk:
The acquisition gives a foreign investor strategic control over critical infrastructure.

Both can exist simultaneously.

For example, acquisition of a large electricity-generation portfolio could be reviewed because of:

market concentration;

transmission access;

pricing power;

control of essential infrastructure; and

foreign control of strategically important assets.

The CCI has considered transactions involving major energy-sector assets, including transactions involving NTPC and Ratnagiri Gas and Power Corporation. (Competition Commission of India)

Therefore, energy acquisitions can be subject to parallel regulatory review.

10. Mitigation Instead of Prohibition

National-security review does not necessarily mean that an investment must be rejected.

Governments may impose mitigation measures, such as:

restricting foreign voting rights;

limiting board representation;

excluding foreign investors from sensitive operations;

requiring cybersecurity controls;

preventing access to classified information;

requiring local data storage;

appointing security officers;

restricting access to control systems;

requiring government approval for subsequent transfers;

requiring divestment of a sensitive component.

This approach allows investment while reducing identified risks.

Ralls illustrates that mitigation orders can be used during the review process before a final decision. (Justia Law)

11. National Security and Cybersecurity

The modern energy system is increasingly digital.

Consequently, national-security review now extends beyond physical ownership.

A foreign investor acquiring an energy company could potentially obtain access to:

SCADA systems;

grid-management software;

smart-meter information;

operational technology;

customer data;

energy-flow information;

system-control interfaces.

This creates a convergence between FDI law, energy law and cybersecurity law.

A transaction involving a modest physical asset may therefore become strategically important if the investor obtains control over its digital infrastructure.

12. International Investment Law

National-security restrictions may also interact with international investment treaties.

Foreign investors may claim that government intervention violates protections such as:

fair and equitable treatment;

protection against expropriation;

non-discrimination;

legitimate expectations;

free transfer of investment.

States, however, may invoke national-security or essential-security exceptions where the relevant treaty permits them.

This creates an important legal tension:

How far may a state restrict foreign investment to protect national security without unlawfully interfering with protected investment rights?

The answer depends heavily on the wording of the applicable treaty and the facts of the transaction.

The Micula v. Romania litigation demonstrates the broader importance of investment-treaty protection when governments alter investment conditions, although it was not itself a national-security review of an energy acquisition. (Justia Law)

13. Proportionality and Administrative Law

A sophisticated national-security review should satisfy several legal principles:

Legality

The government must possess legal authority to conduct the review.

Rationality

There should be a logical connection between the identified risk and the investment.

Proportionality

The response should correspond to the seriousness of the security risk.

Procedural fairness

Investors should receive appropriate notice and an opportunity to respond, subject to legitimate protection of classified information.

Non-discrimination

Security screening should not become an arbitrary mechanism for economic protectionism.

Transparency

Clear criteria and procedures improve investor confidence.

14. EU Approach

The EU has developed an increasingly coordinated investment-screening system.

The 2026 revised framework strengthens screening of investments involving sensitive areas, including:

critical raw materials;

energy infrastructure;

transport infrastructure;

digital infrastructure;

dual-use technologies; and

other strategically important sectors. (Consilium)

The EU approach attempts to reconcile:

open investment + national security + economic security + internal-market coordination.

Importantly, national authorities retain responsibility for final screening decisions, while EU-level cooperation facilitates information sharing and identification of cross-border risks. (Consilium)

15. The Ralls Principle and Procedural Fairness

One of the most important lessons from national-security investment law is that substantive deference does not necessarily eliminate procedural review.

Governments may receive considerable latitude in deciding:

“Does this transaction threaten national security?”

But courts may still examine:

“Was the investor given the legally required process?”

This distinction is crucial because otherwise national security could become an unrestricted justification for arbitrary administrative action.

16. Challenges in Energy Investment Screening

National-security screening presents several difficulties.

1. Definition of national security

National security is broader than military defence but cannot logically include every economic concern.

2. Confidential information

Security decisions may depend upon intelligence that cannot be publicly disclosed.

3. Regulatory overlap

Investors may simultaneously face:

FDI approval;

CCI review;

environmental approval;

electricity regulation;

cybersecurity regulation;

sector-specific licensing.

4. Investment uncertainty

Unclear screening standards can increase transaction costs.

5. Protectionism

Security review must remain distinguishable from an attempt to protect domestic companies from legitimate competition.

6. Rapid technological change

Battery storage, hydrogen, artificial intelligence, smart grids and digital energy platforms create new categories of strategic assets.

17. Importance for India's Energy Transition

India requires enormous investment for:

renewable generation;

transmission expansion;

battery storage;

green hydrogen;

electric mobility;

critical minerals;

LNG infrastructure;

nuclear energy;

smart grids.

Consequently, India must simultaneously pursue:

investment attraction and strategic security.

A modern national-security investment framework should therefore be capable of distinguishing between:

ordinary foreign investment;

investment in strategically important energy assets;

investment involving sensitive technology;

investment involving foreign-government control; and

investments creating systemic energy dependence.

18. Conclusion

National Security Review of Energy Investments represents the intersection of energy law, foreign-investment law, administrative law, competition law, cybersecurity and national-security law.

The fundamental principle is that energy infrastructure cannot be treated merely as another commercial asset. Electricity grids, pipelines, LNG facilities, nuclear installations, strategic storage, critical-mineral supply chains and digital energy systems may directly affect a state's ability to maintain economic and national security.

At the same time, national-security review should operate through clear legal authority, risk-based assessment, procedural safeguards and proportionate remedies.

The case of Ralls Corporation demonstrates that even where governments possess substantial national-security discretion, procedural fairness remains legally significant. Indian cases concerning the Dabhol and Cogentrix projects demonstrate the historical importance of combining investment liberalisation with regulatory supervision. India's contemporary FDI framework, including the beneficial-ownership screening introduced through Press Note 3, illustrates the increasing importance of geopolitical considerations in foreign investment. (FindLaw)

Thus, national-security review should be understood not as a general barrier to foreign investment, but as a specialized governance mechanism for identifying and managing exceptional risks associated with strategic energy assets.