The Ministry of Power has notified the Electricity (Amendment) Rules, 2026, introducing changes to Rule 3 of the Electricity Rules, which govern captive generating projects in India.

The provisions relating to proportionate consumption rules for group captive users and the verification process will come into force on April 1, 2026.

Compared with the earlier draft version, the final rules retain the requirement to meet the 26% ownership and 51% consumption thresholds on a financial-year basis. The draft had proposed allowing compliance to be assessed over a more flexible period aligned with the generating plant’s actual operational period.

The rules also restrict individual users’ admissible captive consumption in projects structured as an association of persons (AoP). Where an individual captive user consumes electricity beyond their proportionate entitlement, only the excess consumption will be treated as electricity supplied by a generating company and will attract a cross-subsidy surcharge and additional surcharge, rather than resulting in the disqualification of the entire project from captive status.

Captive power projects allow industrial and commercial consumers to generate electricity for their own use. In recent years, the group captive model, often used to procure renewable energy, has grown significantly but has also faced regulatory uncertainty and disputes over compliance with ownership and consumption requirements. The amendments seek to clarify the framework governing these arrangements.

The rules define a captive user as the end user consuming electricity generated from a captive power project, including electricity consumed through an energy storage system used to store energy generated by the project.

Where the captive user is a company, the rules treat its subsidiaries, holding company, and other subsidiaries of the same holding company as a single captive user for determining captive status. This clarification reflects how many corporate groups structure investments in captive projects.

The amendments also clarify the meaning of ownership in a captive power project. Ownership refers to a proprietary interest or equity share capital that carries voting rights, held directly or indirectly through subsidiaries, holding companies, or other subsidiaries of the same holding company.

The rules introduce a formal definition of a special purpose vehicle (SPV) established solely to own, operate, and maintain a generating station. Under the captive power rules, such SPVs are treated as an AoP.

The amendments retain the core eligibility criteria required for a power project to qualify as a captive power project. Captive users must collectively hold at least 26% ownership in the power project, and at least 51% of the electricity generated must be consumed for captive use during the financial year.

The rules clarify how captive requirements apply to generating stations with multiple units. Where a generating station is owned through a company established as a special purpose vehicle, one or more generating units within the station may be identified as captive rather than requiring the entire generating station to satisfy captive conditions.

For power projects established by an AoP, all captive users must collectively satisfy the ownership and consumption conditions. At the same time, the amendments introduce clearer rules governing individual consumption within such structures.

Each captive user’s consumption is generally limited to the proportionate share of electricity corresponding to its ownership stake in the project. However, the proportionate consumption restriction does not apply if a captive user holds at least 26% ownership.

If an individual captive user consumes electricity beyond their proportionate entitlement, the excess consumption will be treated as electricity supplied by a generating company and will attract a cross-subsidy surcharge and an additional surcharge.

Compliance with captive criteria will continue to be assessed on a financial-year basis. Where the ownership structure of a captive power project changes during the financial year, each captive user’s proportionate consumption entitlement will be determined based on the weighted average shareholding held during that year.

In cases where both the captive power project and its users are located in the same state, a nodal agency designated by the state government will conduct the verification. If they are located in different states, the National Load Despatch Centre (NLDC) will undertake verification in accordance with procedures issued with the central government’s approval.

Appeals against verification decisions may be filed before a Grievance Redressal Committee constituted by the appropriate government.

The rules also address the treatment of charges during the verification process. Pending verification of captive status for a financial year, cross-subsidy surcharge and additional surcharge will not be levied if captive users submit the required declaration in accordance with procedures issued by the nodal agency or NLDC.

If the project subsequently fails to meet captive criteria, the applicable surcharges apply along with carrying costs calculated at the base rate of the Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.

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