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Power Ministry Proposes New Captive Power Rules with Energy Storage and Ownership Revisions

The Ministry of Power has released draft amendments to Rule 3 of the Electricity Rules, 2005, outlining updated conditions for qualifying a power project as a captive power project.

While maintaining the core ownership and consumption criteria, the revised draft introduces new provisions related to energy storage, indirect ownership through corporate structures, consumption limits, and verification procedures.

According to the proposed rules, a project will be recognized as captive only if the captive users collectively hold at least 26% ownership in the generating unit. This ownership can be held directly or indirectly through a holding company, its subsidiaries, or other related entities, and must represent a proprietary interest with voting rights.

For special purpose vehicles (SPVs), the 26% equity requirement will apply proportionally to only those generating units identified as captive. The SPV must also be a distinct legal entity responsible solely for owning, operating, and maintaining the power plant.

Additionally, captive users must consume a minimum of 51% of the power generated annually—either directly or via an energy storage system. Consumption by a subsidiary or holding company of a captive user will also count toward captive use.

For co-operative societies, the 26% ownership and 51% consumption thresholds must be met collectively by all members. Similarly, in the case of associations of persons, both conditions apply collectively, with each member’s consumption capped at 110% of their proportional entitlement.

If a project and its users span multiple states, the Central Electricity Authority (CEA) will verify the captive status following procedures approved by the central government.

The ministry clarified that any project failing to meet the ownership or consumption conditions in a financial year will have its entire generation treated as that of a non-captive generating company.