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The Central Electricity Authority (CEA) has introduced a standard for verifying the captive status of captive power projects (CGP). It will also include their users and will apply to all projects and consumers wishing to gain CGP and related captive user status. They must follow the framework to comply with rule 3 of the Electricity Rules, 2005. The verification process is in force from the financial year 2024-25. Its primary objective is to determine the captive status of power plants that have CGPs with users in more than one state.

The mechanism designates the director of the legal division, CEA as the verifying authority (VA). Verification is required where a generating station is in one state and at least one of its captive users is in another. The VA will confirm compliance with the captive status conditions and report the findings to stakeholders. These include CGPs, captive users, distribution licensees, state and joint electricity regulatory commissions, state load dispatch centres (SLDC) and regional load dispatch centres (RLDC). A minimum of 26% ownership is required to qualify as a CGP. Such ownership must be maintained throughout the financial year 1 April to 31 March, even if there are ownership changes during the period. In that case, the weighted average principle will apply to determine whether the proportionate electricity consumption requirement has been complied with. Electricity consumption by a subsidiary or holding company of a captive user will be deemed valid, even if the entity does not hold direct equity in the CGP. However, they must install separate interface meters with real-time communication capabilities as required by the metering regulations.

Where special purpose vehicles (SPV) own generating stations, they must identify the specific unit designated for captive purposes and report it to the VA, distribution licensee and RLDC or SLDC at the beginning of the financial year. Where an SPV operates a number of generating units, captive users must hold an aggregate of at least 26% of the proportionate equity share capital with voting rights and use no less than 51% of the generated energy annually. Consumption must be in proportion to ownership of the designated unit, allowing for a variation of up to 10%. A single captive user must consume at least 51% of the net electricity generated annually. Group captive users, excluding co-operative societies, must collectively consume at least 51% of the net electricity generated, in proportion to their ownership shares, with an allowable variation of up to 10%.

SPVs can own, operate, and maintain generating stations, but they cannot be captive users themselves. If a CGP uses an energy storage system (ESS), the CGP or captive user must declare at the start of the financial year whether the ESS will function as a generating system or an energy warehouse. Verification of CGP and captive user status will be conducted annually. When used as storage, technical losses in the electrical network and the ESS will be included in captive user energy consumption calculations. Applications for CGP verification must be submitted by 31 May each year with relevant documents and affidavits in prescribed formats. Only eligible captive users may be included in the submissions. The VA will review and issue the decision on the application within two months of submission. Failure to submit any clarifications required by the VA may result in delays or rejection of the verification.

Within 15 days of submitting verification applications, applicants must inform RLDCs, SLDCs and distribution licensees, who must assist the VA in verifying captive status. Applicants dissatisfied with the VA’s decision may appeal through a two-tier appellate mechanism.

The introduction of this verification procedure provides a structured and transparent framework to determine the captive status of power projects operating across many states. It will streamline the verification process and provide clarity to CGPs and captive users by standardising ownership and consumption criteria and ensuring strict compliance. The appeal mechanism ensures applicants have a structured remedy in the case of disputes, ensuring a fair and robust verification process. This may serve as a template for states where CGPs and consumers are situated within the same state.

Abhishek Tripathi is the managing partner and Rahul Bangia is a senior associate at Sarthak Advocates & Solicitors

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