Ministry Of Power Proposes Draft Amendments To Strengthen Captive Generating Plant Regulations

The Ministry of Power has released draft amendments to Rule 3 of the Electricity Rules, 2005, which define and regulate Captive Generating Plants in India. The proposed changes aim to make the framework clearer and more precise, while the government invites comments from stakeholders including state governments, regulatory commissions, and industry associations. The deadline for submitting feedback on the draft is October 22, 2025. These amendments are part of the government’s broader effort to modernize the legal framework for the power sector.

Under the draft rules, a power plant can be classified as a “captive generating plant” if certain ownership and consumption conditions are met. At least 26% of the plant’s ownership must be held by the captive user or users. In addition, at least 51% of the total electricity generated annually must be consumed for captive purposes. These criteria ensure that the plant primarily serves the energy needs of its owners rather than functioning solely as a commercial generating station.

The draft provides specific guidance for plants set up by registered cooperative societies. In such cases, the ownership and consumption conditions can be satisfied collectively by all members. Similarly, for an association of persons, collective compliance is allowed, but with a cap on individual benefits. Each member or user cannot claim consumption benefits exceeding 110% of their proportional ownership share. This ensures fairness and prevents any single user from taking undue advantage of the captive plant’s output.

Another important aspect of the draft relates to generating stations owned by Special Purpose Vehicles, or SPVs. An SPV is a legal entity created solely for owning and operating a power plant. In such cases, only specific units within the generating station can be designated for captive use. The ownership and consumption rules apply only to the identified unit. For example, if a plant has two units and one is designated as captive, the users must own at least 26% of the equity for that unit and consume at least 51% of its annual output. The draft also specifies that an SPV cannot undertake any business other than owning and maintaining the generating station.

The proposed amendments place the responsibility on captive users to meet the minimum consumption requirements. If the plant fails to meet the prescribed percentages in any year, the electricity generated will be treated as if it were supplied by a regular generating company. This means the electricity could be subject to different regulations, tariffs, and obligations, ensuring compliance with broader sector rules.

Additionally, the draft expands the definition of “captive use.” It now includes electricity consumption by a subsidiary or holding company of the captive user. The rules also allow for the use of Energy Storage Systems in captive plants. For projects spanning multiple states, the Central Electricity Authority will verify the captive status, ensuring uniform enforcement across regions.

Overall, the draft amendments seek to provide a more transparent, precise, and equitable framework for captive power generation in India. By clearly defining ownership and consumption conditions, addressing SPVs, and including modern considerations such as subsidiaries and energy storage, the proposed rules are expected to strengthen compliance and streamline the regulatory environment for captive generating plants. These changes mark a significant step in updating India’s legal and operational approach to captive power.