The Ministry of Power has officially notified the Electricity (Amendment) Rules, 2026, introducing important changes to Rule 3 of the Electricity Rules, which govern captive power generating projects in India.
The new provisions related to proportionate electricity consumption for group captive users and the verification process will come into effect from April 1, 2026.
Key Compliance Requirements Retained
Under the revised rules, the existing eligibility conditions remain unchanged. For a power project to qualify as a captive power project, users must collectively:
• Hold at least 26% ownership in the generating project
• Consume a minimum of 51% of the electricity generated during a financial year
Earlier draft proposals had suggested allowing compliance to be calculated over the actual operational period of the plant, but the final rules continue to assess compliance strictly on a financial-year basis.
Rules for Group Captive Users Clarified
The amendments introduce clearer guidelines for group captive structures, particularly projects established as an Association of Persons (AoP).
Each captive user is generally allowed to consume electricity proportionate to their ownership share in the project. However, if a captive user consumes electricity beyond their entitlement, only the excess consumption will be treated as electricity supplied by a generating company.
In such cases, the excess power will attract cross-subsidy surcharge and additional surcharge, instead of disqualifying the entire project from captive status.
The proportionate consumption rule does not apply if a user holds at least 26% ownership in the project.
Definition of Captive Users Expanded
The rules now define a captive user as the end consumer using electricity generated from a captive power project. This definition also includes electricity consumed through energy storage systems used to store energy generated by the project.
Where the captive user is a corporate entity, its subsidiaries, holding company, and other subsidiaries of the same holding company will be considered as a single captive user for determining captive status.
Ownership Structure Clarified
Ownership in a captive power project has been clarified as equity share capital carrying voting rights. This ownership can be held directly or indirectly through subsidiaries, holding companies, or related group entities.
The amendments also introduce a formal definition of a Special Purpose Vehicle (SPV). Such SPVs, established solely to own, operate, and maintain generating stations, will be treated as an Association of Persons (AoP) under captive power rules.
Captive Units Within Large Power Plants
For generating stations with multiple units, the rules clarify that only specific units can be designated as captive units, instead of requiring the entire generating station to meet captive eligibility conditions.
This provides greater operational flexibility for large power plants.
Compliance Verification Process
Verification of captive power project compliance will continue to be conducted annually.
• If both the project and captive users are located in the same state, verification will be carried out by a nodal agency designated by the state government.
• If they are located in different states, verification will be conducted by the National Load Despatch Centre (NLDC).
Appeals against verification decisions can be submitted to a Grievance Redressal Committee constituted by the appropriate government authority.
Treatment of Surcharges During Verification
During the verification process for a financial year, cross-subsidy surcharge and additional surcharge will not be levied, provided captive users submit the required declaration to the nodal agency or NLDC.
However, if the project later fails to meet captive eligibility criteria, the applicable surcharges will be imposed along with carrying costs calculated as per the Late Payment Surcharge Rules, 2022.
Objective of the Amendments
Captive power projects allow industrial and commercial consumers to generate electricity for their own use, reducing reliance on grid power.
In recent years, the group captive model—especially for renewable energy procurement—has expanded rapidly, but regulatory ambiguity and disputes over ownership and consumption rules have created uncertainty.
The latest amendments aim to bring greater clarity, transparency, and compliance certainty to the captive power framework in India.
