A US federal appeals court has ruled that Texas can keep a Chinese-linked solar developer off its power grid, rejecting the company's argument that federal review of foreign investment overrides state law. The decision could encourage other states weighing similar restrictions, Utility Dive reported on 29 October.
The US Court of Appeals for the Fifth Circuit on 16 October affirmed the dismissal of a complaint by GH America Energy, a Texas company whose parent, Xinjiang Guanghui Industry Investment (Group), is headquartered in China.
How the case began
The dispute centres on the Blue Star Solar Project in Val Verde County. Texas's Lone Star Infrastructure Protection Act of 2021 bars government bodies and critical-infrastructure businesses from agreements giving certain companies "direct or remote access to or control of critical infrastructure", which includes the grid run by the Electric Reliability Council of Texas (ERCOT). It covers companies headquartered in China or majority owned or controlled by Chinese citizens or the Chinese government, and it also applies to Russia, Iran and North Korea.
In October 2022, an ERCOT lawyer told the company it did not comply and that its interconnection application for Blue Star was being cancelled. In 2023, the Texas Legislature barred ERCOT from registering or interconnecting an entity unless it attests to compliance with the law.
GH America Energy sued in June 2024. It claims the denial forced it to sell two other projects at a "substantial loss". Utility Dive said the company could not be reached for comment.
What the court said
The company argued that the law was preempted by the federal statutes behind the Committee on Foreign Investment in the United States (CFIUS). Judge Jerry E. Smith, writing the opinion, disagreed. CFIUS "wields limited authority — and that limited authority does not reflect a Congressional desire to exclusively control all foreign-investment screening", he wrote.
The opinion concludes that, where Congress has been silent, "Texas has a free lane to enact and enforce" the law. Judges Haynes and Engelhardt sat on the panel, with Haynes concurring only in the judgment.
How far it reaches
"I think it's a big deal because we're seeing a lot more action at the state level," Daniel Skees of the law firm Morgan Lewis told Utility Dive. Before this, he said, "there had been a feeling for a while that ultimately this stuff might be preempted by CFIUS review".
The question is not settled nationally. Morgan Lewis notes in a separate post that the ruling binds only Texas, Louisiana and Mississippi, and points to a pending Eighth Circuit case, Jones Eagle v. Ward. It also says an Arkansas district court found federal preemption likely. Utility Dive says the decision could be appealed to the US Supreme Court.
Mark Stover, executive director of the Texas Solar+Storage Association, backed the law's aim. "LSIPA is an important grid security tool and it is the responsibility of industry to follow the law," he wrote by email.
What it means for US developers
In Texas, ownership is now a grid-connection question that the courts have backed, and developers must attest to compliance before ERCOT will interconnect them. Anyone buying or selling Texas projects should check the ownership chain early. Developers in other states should watch whether similar laws follow.
Source: Utility Dive; Fifth Circuit opinion No. 25-50879; Morgan Lewis.
