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Government Introduces Amendments to Captive Power Project Rules

The revised framework for group captive projects and verification procedures will come into effect from April 1, 2026.

The Ministry of Power has notified the Electricity (Amendment) Rules, 2026, introducing revisions to Rule 3 of the Electricity Rules that govern captive generating projects in India. The updated provisions concerning proportionate consumption for group captive users and the verification mechanism will be implemented from April 1, 2026.

Under the amended rules, the requirement for captive users to collectively hold at least 26 percent ownership in a generating project and consume a minimum of 51 percent of the electricity generated remains unchanged. Compliance with these conditions will continue to be assessed on a financial-year basis.

The new framework also introduces clearer provisions regarding electricity consumption by individual users in group captive projects structured as an association of persons (AoP). If a user consumes electricity beyond their permitted share, only the excess consumption will be treated as power supplied by a generating company and will attract cross-subsidy and additional surcharges. This change ensures that the entire project will not lose its captive status due to excess usage by a single participant.

Captive power projects enable industrial and commercial entities to generate electricity primarily for their own consumption. In recent years, the group captive model—often used for procuring renewable energy—has expanded significantly, although regulatory ambiguities and compliance disputes have also emerged. The latest amendments aim to provide greater clarity and stability to the regulatory framework governing such projects.

The revised rules define a captive user as the end consumer of electricity generated from a captive project, including electricity stored and later consumed through energy storage systems connected to the project.

Where the captive user is a company, the regulations treat its subsidiaries, holding company, and other subsidiaries under the same holding entity as a single captive user when determining compliance with captive project requirements. This provision reflects the way many corporate groups structure their investments in power projects.

The amendments also clarify the definition of ownership in captive generating facilities. Ownership refers to an equity or proprietary interest carrying voting rights and may be held either directly or indirectly through subsidiaries, holding companies, or related corporate entities.

Additionally, the rules introduce a formal definition of a special purpose vehicle (SPV) established specifically to own, operate, and maintain a generating station. Such SPVs will be treated as an association of persons under the captive power framework.

The updated provisions also address projects with multiple generating units. In cases where a generating station is owned through an SPV, specific generating units within the station may be designated as captive units instead of requiring the entire facility to meet captive power criteria.

For projects structured as an association of persons, captive users must collectively satisfy the ownership and consumption requirements. However, the amendments provide greater clarity on individual consumption limits. Typically, each user’s electricity consumption should correspond to their ownership share, although this proportional restriction does not apply if a user holds at least 26 percent ownership in the project.

If electricity consumption exceeds the permissible share, the additional power drawn will be treated as supply from a generating company and will attract cross-subsidy and additional surcharges.

The rules also outline procedures for verifying captive status. When both the captive project and its users are located within the same state, verification will be conducted by a nodal agency designated by the state government. In cases where the project and users are located in different states, the National Load Despatch Centre (NLDC) will carry out the verification in accordance with procedures approved by the central government.

Stakeholders may challenge verification outcomes before a grievance redressal committee constituted by the relevant government authority.

The amendments also clarify how charges will be handled during the verification period. Until the captive status of a project for a particular financial year is verified, cross-subsidy and additional surcharges will not be levied provided the captive users submit the necessary declarations as per procedures defined by the nodal agency or NLDC.

However, if a project later fails to meet the captive criteria, the applicable surcharges will be imposed along with carrying costs calculated at the base rate specified under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.