Draft rules propose clearer norms for captive power plants

The Ministry of Power (MoP) has issued draft amendments to the Electricity Rules, 2005, proposing changes to regulations governing Captive Generating Plants (CGPs) to clarify ownership criteria, introduce greater operational flexibility, support industrial electricity costs, and strengthen grid stability. Through a letter dated January 2, 2026, the Ministry has invited feedback on proposed revisions to Rule 3, which defines the conditions for CGP qualification, and circulated the draft notification and explanatory note to central and state ministries, regulators, public sector undertakings (PSUs), industry associations, and power exchanges. Stakeholder comments have been invited by January 17, 2026.

The amendments propose an expanded definition of ownership, explicitly recognising equity held through subsidiaries, holding companies, and other subsidiaries of the holding company. This change intends to reflect practical corporate structures where power generation and consumption are distributed across related entities.

Compliance timelines are proposed to be more flexible. Entities may choose either a financial year or any continuous period within a year for compliance assessment. Where shareholding varies over time, entitlement will be determined using a weighted average calculation for the chosen assessment period.

For Associations of Persons (AoPs), including Special Purpose Vehicles (SPVs), captive users would be allowed to draw power based on operational needs. Consumption beyond an individual user’s proportional entitlement will not be treated as their personal captive use, but it will still count toward the overall 51 per cent consumption requirement at the plant level. Any captive user with 26 per cent or more ownership will not be subject to this proportional consumption restriction.

Verification responsibility will rest with designated agencies. For intra-state CGPs, verification will be handled by a state nodal agency. For inter-state CGPs, the National Load Despatch Centre (NLDC) will be responsible. Appeals will be heard by a Grievance Redressal Committee constituted by the relevant government.

Cross-subsidy surcharge (CSS) and additional surcharge (AS) will not be applied during the verification period if the required declaration is submitted. If verification later determines that the plant does not qualify as a CGP, these charges, along with carrying costs, will become payable.

The rules also propose extending the option to identify specific generating units within a larger station as the CGP to all captive users. This provision currently applies only to SPVs.

According to the explanatory note, the proposed amendments aim to resolve interpretation gaps from earlier regulatory changes, reduce litigation, and align with national goals related to industrial competitiveness and the energy transition. The note states that stronger captive generation frameworks can help mitigate high industrial tariffs, improve grid efficiency, and aid non-fossil capacity integration.

The amendments will be titled the Electricity (Amendment) Rules, 2026, and will take effect upon notification. Provisions related to AoP consumption and state nodal agencies are proposed to come into effect from April 1, 2026.

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