Government amends rules governing captive power generation

NEW DELHI: The government on Saturday amended electricity rules governing captive power generation to ensure greater clarity for industry and align the framework with India’s clean energy transition and industrial growth goals.The power ministry said the Electricity (Amendment) Rules, 2026, seek to remove interpretational ambiguities in the framework governing captive generating plants while simplifying compliance and improving ease of doing business.Captive power generation, permitted under the Electricity Act, 2003, allows industries to produce electricity for their own use. The ministry said that generating power closer to the point of consumption helps reduce transmission losses, improve system efficiency and strengthen grid resilience.

The amendments were finalised after extensive stakeholder consultations.A key change clarifies ownership provisions to recognise modern corporate structures. The revised rules specify that ownership of a captive generating plant can include subsidiaries, holding companies and other subsidiaries of the holding company of the entity that sets up the plant. This is aimed at ensuring that investments made through group entities or special purpose vehicles are not denied captive status due to organisational structuring.

The rules also introduce a uniform verification framework for determining captive status. Verification will now be undertaken for the entire financial year, while in the first or last year of ownership, it may be carried out for the relevant part of the year.For group captive projects established through an association of persons, the amendments provide greater operational flexibility. Captive users can draw power according to their operational requirements as long as statutory ownership and consumption conditions are met.

Consumption by an individual user beyond its entitlement will not disqualify the plant from captive status, though such excess will not count as that user’s captive consumption.From April 1, 2026, states and Union territories can designate a nodal agency to verify captive status in intra-state cases, while the National Load Despatch Centre will undertake verification for inter-state captive consumption. A grievance redressal committee will also be set up to resolve disputes arising from such verification.The amendments also address the treatment of cross-subsidy surcharge (CSS) and additional surcharge (AS). These charges will not be levied on captive users pending verification if the required declaration is submitted to the NLDC or the designated state agency. However, if a plant fails to qualify as a captive generating plant upon verification, the applicable surcharges will become payable along with carrying cost calculated at the base rate of late payment surcharge.The ministry said the reforms are expected to encourage investment in captive and non-fossil fuel-based power projects while helping industries access reliable and cost-competitive electricity.The National Solar Energy Federation of India's CEO Subrahmanyam Pulipaka said the rules clarify that a company, its subsidiaries and its holding companies will be treated as a single captive user for verifying both ownership and proportionate consumption.“The notification represents a significant milestone in the regulatory landscape for captive power generation, reflecting a balanced consideration of stakeholder feedback. It provides much-needed regulatory certainty for the renewable energy sector. The Ministry positively accepted NSEFI recommendation to notify the final rules before the conclusion of the financial year. This timely action ensures that generating stations and consumers can align their operations with the new framework for the upcoming assessment period," Pulipaka said.

He added that another critical positive development in the final notification is the formal adoption of the "economic group" principle, which NSEFI identified as essential to reflect modern corporate structures. "The notified rules explicitly clarify that a company, its subsidiaries, and its holding companies are to be collectively treated as a single captive user for the purposes of verifying both ownership interests and proportionate consumption," he said.