In a closely-watched case that will have important implications for future Chinese investment in the U.S. renewable energy market, President Obama is expected to rule in the next day or so on whether Ralls Corporation can go ahead with the acquisition of a wind farm that happens to be located near restricted airspace used for training exercises conducted by the U.S. Navy.

Ralls is privately owned by two Chinese nationals. In March 2012, Ralls was the latest purchaser of four wind farm projects formed by an Oregon energy company. The wind farms are expected to make up less than 0.4% of the regional power grid’s total generating capacity, and the Federal Aviation Administration had already approved each of the twenty planned turbines at the proposed location. However, CFIUS reviewed the transaction (after the Department of Defense learned about it in Wind Power Monthly), first at its own initiative, and then on the basis of a voluntary notice filed by Ralls. When CFIUS took interim action to block the deal pending a determination from President Obama, Ralls filed suit in federal court, arguing that the Committee had exceeded its power. The parties then reached agreement under which Ralls could move forward with some limited development of the project, pending the President’s decision.

With the September 28 deadline looming, President Obama faces potential negative consequences with either approving or rejecting the deal. If he follows CFIUS’ conclusion that the transaction involves national security concerns that cannot be mitigated, he may feed recent criticism that his administration has been protectionist and too closed in trade with China. If he elects to disregard the Committee’s conclusions and approve the deal, he will almost certainly be criticized for ignoring the advice of the very national security experts tasked with evaluating these transactions. Complicating the issue is that, at least publicly, there does not appear to be significant evidence of a national security concern with this transaction. This dilemma may well lead the administration, through CFIUS, to seek a compromise with Ralls to mitigate the perceived security issues, while still granting the parties the economic benefits of the deal.

Reed Smith’s John Zhang has commented on this issue and the concerns it poses for Chinese investors in the Chinese publication, Caixin.