New Delhi: The Ministry of Power has amended the Electricity Rules, 2005 to clarify the eligibility requirements for captive power plants and streamline verification procedures. The changes were notified through the Electricity (Amendment) Rules, 2026 under the Electricity Act, 2003 and was published in the Official Gazette on March 13, with certain provisions taking effect from April 1.
Follow The PSUWatch Channel on WhatsApp
The amended rules reiterate the basic conditions for a plant to qualify as a captive generating plant under the Electricity Act. The notification states that “no power plant shall qualify as a captive generating plant… unless not less than twenty-six per cent of the ownership is held by the captive user(s)” and “not less than fifty-one per cent of the aggregate electricity generated in such plant, during the financial year, is consumed for captive use.”
The rules also clarify that where a generating station is owned by a company formed as a special purpose vehicle (SPV), captive eligibility may apply to specific generating units rather than the entire station.
The notification explains that “a unit or units of such generating station identified for captive use and not the entire generating station satisfies the conditions” relating to ownership and consumption.
The amendment also introduces a clear verification framework for determining captive status. Where the power plant and captive users are located within the same state, verification will be conducted by a nodal agency designated by the state government. The notification states that “the verification of captive status of a power plant… shall be carried out by the nodal agency designated by the State Government.”
For interstate captive arrangements, verification will be undertaken by the National Load Despatch Centre (NLDC) under procedures approved by the Central government. The rules add that “where a captive power plant and its captive user(s) are located in more than one State, the verification shall be carried out by the National Load Despatch Centre (NLDC).”
The rules also clarify the treatment of cross-subsidy surcharge (CSS) and additional surcharge during the period when captive status verification is pending. According to the notification, “pending verification of captive status for any financial year, the cross-subsidy surcharge and additional surcharge shall not be levied, subject to the declaration furnished by the captive user(s) in accordance with the procedure issued by the nodal agency or NLDC.”
However, the exemption will not apply if the plant ultimately fails to qualify as a captive generating plant. The notification states that “where the power plant fails verification of captive status for the financial year after furnishing such declaration, the applicable cross-subsidy surcharge and additional surcharge… along with the carrying cost calculated at the base rate of Late Payment Surcharge… shall be payable.”
Follow PSU Watch on X
An explanatory note accompanying the rules says captive generation remains a critical mechanism for industry to secure reliable and cost-effective electricity. It notes that “captive power [is] a key instrument for ensuring reliable, quality, and cost-effective electricity supply to industry.”
The note adds that “industrial electricity tariffs in India remain higher than those prevailing in comparable emerging economies such as China, Vietnam, and Indonesia.” According to the government, encouraging captive generation can also improve system efficiency and strengthen India’s energy transition.
The explanatory note states that “encouraging generation closer to the point of consumption can reduce transmission and distribution losses, improve system efficiency, and enhance grid resilience.”
It further notes that promoting captive generation will support the country’s broader economic ambitions, saying it is “essential to support the vision of Viksit Bharat @ 2047 and to strengthen the long-term competitiveness of Indian industry.”
Follow PSU Watch on LinkedIN
The explanatory note also states that the amendments were introduced after interpretational issues emerged in earlier rules related to captive consumption by group companies.
It says the changes were proposed “with a view to resolve ambiguities and reducing litigation arising from divergent interpretations.”
The government added that the revised framework seeks to provide a clearer and more implementable regime for industries investing in captive power projects.
(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)