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The Ministry of Power has notified the Electricity (Amendment) Rules, 2026 (dated 13 March 2026), substituting rule 3 of the Electricity Rules, 2005 governing captive generating plants under section 9 of the Electricity Act, 2003. The amendments address ambiguities relating to ownership structures, proportional consumption and verification mechanisms (particularly in the context of group entities), associations of persons (AoPs), and special purpose vehicles (SPVs). While retaining the 26% ownership and 51% consumption thresholds, the amendment rules seek to align the captive framework to 含羞草社区 energy transition objectives.

Group ownership and collective compliance

The concept of “ownership” now explicitly encompasses equity held directly or through the captive user’s subsidiary companies, holding company, and other subsidiaries of such holding company. This recognition of group ownership structures eliminates the interpretational vacuum that earlier denied captive benefits to legitimate group entities. A captive user that is a company is now deemed to include its subsidiaries, holding company and other subsidiaries for ownership and consumption purposes.

Earlier, the Supreme Court, in the matter of Dakshin Gujarat Vij Company Limited v Gayatri Shakti Paper and Board Limited, held that an SPV constitutes an AoP under rule 3, making the proportionality requirement applicable. This resulted in a unitary qualifying ratio, requiring each captive user to consume electricity broadly in proportion to its ownership (plus-minus 10%), where non-compliance by any user could impact the captive status of the entire plant.

The amendment rules depart from this rigid approach by shifting to a collective compliance framework, where aggregate consumption determines qualification and deviations only affect individual captive benefit, rather than overall captive status.

SPVs are now characterised as AoPs for captive generation purposes, subjecting them to the proportionate consumption framework. Each captive user within an AoP is permitted to draw power based on operational requirements; however, individual captive consumption is admissible only up to 100% of their proportionate entitlement, calculated with reference to their ownership share in the total captive plant.

Any consumption exceeding the proportionate limit does not qualify as individual captive consumption, however such excess consumption continues to be reckoned towards meeting the collective 51% consumption requirement at the plant level. This preserves the flexibility of a group captive model while preventing disproportionate allocation of captive benefits.

26% ownership carve-out for captive power

A significant carve-out applies where an individual captive user holds not less than 26% ownership. In such a case, the proportionate consumption ceiling does not apply and the entirety of that user’s consumption qualifies as captive consumption.

Where the minimum captive consumption requirement is not met during the financial year, the entire electricity generated by the power plant is treated as supply of electricity by a generating company, attracting cross-subsidy surcharge and additional surcharge; further, in the case of AoPs, any consumption by an individual captive user in excess of its proportionate entitlement is treated as non-captive supply to that extent and is accordingly liable to such surcharges.

Where ownership patterns vary across the financial year – a common occurrence in SPVs and AoPs due to share transfers, restructuring or phased operations – proportionate consumption is to be determined on the basis of weighted average shareholding of such captive user during the financial year.

Captive power verification: Nodal agencies, NLDC appeals

On verification, the rules establish a structured nodal agency framework. For intrastate captive arrangements, verification is undertaken by a nodal agency designated by the respective state government. For interstate arrangements, responsibility has been assigned to the National Load Despatch Centre, replacing the Central Electricity Authority’s earlier role. An appeal against such verification is provided through a Grievance Redressal Committee constituted by the appropriate government.

Pending verification, captive users are not liable to pay the cross-subsidy surcharge and additional surcharge, subject to submission of the prescribed declaration. Where the generating plant subsequently fails to qualify as captive, the applicable surcharges become payable along with carrying costs, calculated at the base rate of Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.

Anubhav Tiwari is a partner and Jahnavi Tolani is an associate at Sarthak Advocates & Solicitors