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New Delhi: The Centre has proposed amendments to the Electricity Rules, 2005, aimed at ending long-running disputes over captive power status by introducing greater flexibility and clarity for group captive power plants. In a draft notification circulated for stakeholder consultation, the Ministry of Power said the changes are intended to address “ambiguities and interpretational issues” that have emerged in the application of Rule 3 (Requirements of Captive Generating Plant), and to reduce “litigation arising from divergent interpretations” across states.
The ministry said the amendments are meant to create an “easy to understand and implementable and equitable framework” that preserves the benefits of captive power while ensuring compliance, accountability and clarity in determining captive status.
The proposed changes are expected to directly impact power-intensive industries that rely heavily on captive and group captive power arrangements to manage high industrial electricity tariffs and supply volatility.
These include sectors such as steel, cement, aluminium, chemicals, fertilisers, refineries, mining, data centres, textiles and large manufacturing units, many of which operate captive plants through group structures or special purpose vehicles.
The ministry noted that industrial electricity tariffs in India remain higher than those in comparable emerging economies, and that constraints in accessing affordable non-fossil energy “adversely impact operational viability, export competitiveness, and investment attractiveness of Indian industry.”
A key proposal is to move away from rigid annual ownership and consumption tests towards assessment based on the actual operational period of captive users. The draft states that assessing captive status on actual operational patterns, rather than a fixed financial-year basis, would allow “greater operational flexibility in availing captive consumption benefits,” particularly for industries with seasonal or variable demand.
To prevent disqualification on technical grounds, the ministry has proposed that there will be “no disqualification due to disproportionate consumption by an individual user,” as long as collective captive consumption meets the statutory threshold.
To address repeated disputes over corporate structures, the draft amendments clarify that Special Purpose Vehicles used for captive generation will be treated as an Association of Persons.
The ministry said this would “eliminate interpretational ambiguities and ensure consistency in the treatment of SPVs,” which are widely used by industries to develop captive renewable and non-fossil energy projects.
Group companies, including subsidiaries and holding companies, would be treated collectively as captive users, ensuring that “legitimate captive investments by corporate groups are not denied the benefits of captive status merely due to organisational structuring.”
In a significant relief measure, the Centre has proposed that cross-subsidy surcharge and additional surcharge should not be levied while captive status verification is pending, provided captive users submit the prescribed declarations.
According to the draft, this is aimed at ensuring that captive users are not subjected to “immediate surcharge liabilities solely due to procedural timelines,” while still protecting the financial interests of distribution licensees.
If a generating plant ultimately fails to meet captive norms, the applicable surcharges would be recovered later along with carrying costs, ensuring “parity and accountability while providing temporary relief pending verification,” the ministry said.
The ministry has framed captive power as a critical tool for reducing transmission losses, improving grid resilience and strengthening energy security by encouraging generation closer to consumption centres.
Promoting captive generation, it said, is essential to support “the vision of Viksit Bharat @2047 and to strengthen the long-term competitiveness of Indian industry,” particularly as electricity demand growth is expected to remain industry-led.
Stakeholder comments on the draft amendments have been invited before the rules are finalised and notified.
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