Power Ministry amends captive power rules with proportionate consumption framework

The Ministry of Power (MoP) has revised the regulatory framework for captive generating plants, introducing a proportionate consumption mechanism that limits how much electricity each co-owner in a multi-user plant can claim as captive. 

The changes are set out in the Electricity (Amendment) Rules, 2026, published in the Gazette of India on Friday. The amendment replaces Rule 3 of the Electricity Rules, 2005 in full. Most provisions take effect immediately, while the proportionate consumption limits and the new verification mechanism will apply from April 1, 2026.

Eligibility criteria remain unchanged

The core requirements for captive status remain unchanged. A captive user is required to hold at least 26% ownership in the generating plant and consume at least 51% of the electricity generated.

The amendment introduces additional provisions governing how these thresholds apply when multiple users jointly own a captive generating plant through an association of persons.

Proportionate consumption mechanism introduced

Under the revised framework, each participant in an association of persons can claim captive status only for electricity consumption up to 100% of their proportionate share. This share is calculated by applying the user’s ownership percentage to the plant’s total eligible captive consumption.

If a user consumes electricity beyond this entitlement, the excess consumption will be treated as electricity purchased from a generating company. Such consumption will attract cross-subsidy surcharge and additional surcharge.

An exception applies where an individual captive user holds at least 26% ownership in the generating plant. In such cases, the user is exempt from the proportionate consumption ceiling and may consume electricity up to their full actual usage.

Ownership changes during the financial year

The amendment also addresses situations where ownership changes during a financial year. In such cases, the proportionate entitlement will be determined based on the weighted average shareholding during that financial year.

This provision is intended to ensure that changes in shareholding do not affect the calculation of captive eligibility during the compliance period.

Corporate group treatment clarified

The rules clarify how ownership and consumption will be treated within corporate groups. A parent company, its subsidiaries, its holding company and other subsidiaries of that holding company will be treated as a single captive user.

Electricity consumed by any entity within the group will count toward the group’s overall proportionate entitlement. The group may allocate consumption internally among its entities.

This clarification addresses earlier disputes where related entities structured ownership separately to increase their combined captive consumption entitlement.

Unit-level captive status allowed for SPVs

For projects developed through Special Purpose Vehicles (SPVs), the amendment allows captive status to be claimed at the unit level rather than for the entire generating plant.

For example, in a 1,000 MW plant comprising two 500 MW units, one unit may be designated as captive. In such cases, the 26% ownership and 51% consumption requirements will apply only to the equity and generation associated with that unit.

Verification mechanism introduced

The amendment establishes a formal verification process for captive status. Where both the generating plant and captive users are located within the same state, verification will be carried out by a nodal agency designated by the state government.

For inter-state arrangements, verification will be conducted by the National Load Despatch Centre (NLDC).

Generating plants may submit a self-declaration while verification is pending in order to avoid payment of an upfront surcharge. If verification fails, the applicable surcharge will be payable along with carrying costs calculated at the Late Payment Surcharge base rate.

A Grievance Redressal Committee constituted by the appropriate government will hear appeals against verification decisions.

Implications for industrial captive projects

The amendments are expected to affect large industrial groups, including companies in the steel, aluminium and cement sectors that have developed captive renewable capacity through consortium ownership structures.

Where electricity consumption does not closely align with ownership shares, companies could face retrospective exposure beginning April 2026.

The revised rules do not alter the basic economic rationale for captive power, which continues to offer lower electricity costs for large industrial consumers compared with grid supply. However, the new framework introduces additional compliance requirements, requiring project operators and legal teams to plan consumption allocations carefully at the beginning of each financial year.

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