By Enersider Desk | New Delhi
The Union Government has notified the Electricity (Amendment) Rules, 2026, introducing amendments to Rule 3 of the Electricity Rules, 2005 related to Captive Generating Plants (CGPs).
The amendments are aimed at removing interpretational ambiguities, improving ease of doing business for industry and aligning the captive power framework with India’s energy transition and industrial growth objectives, according to an official statement.
Captive power generation has been a key enabling provision under the Electricity Act, 2003. The National Electricity Policy, 2005 recognised captive generation as an important mechanism for ensuring reliable and cost-effective electricity supply to industry. Captive power has supported industrial growth by enabling industries to mitigate supply constraints and manage electricity cost volatility, the statement said.
Indian industries are increasingly adopting non-fossil fuel-based energy to meet sustainability commitments and reduce energy costs. In this context, enabling a clear, predictable and implementable framework for captive power generation is critical for enhancing industrial competitiveness and supporting India’s long-term economic growth, according to the official statement.
Encouraging generation closer to the point of consumption also helps reduce transmission losses, improve system efficiency and strengthen grid resilience. The amendments therefore seek to provide clarity in the implementation of captive generation provisions while maintaining statutory safeguards relating to ownership and consumption, the statement added.
The Electricity (Amendment) Rules, 2026 have been introduced to provide greater clarity and flexibility in the framework governing captive power plants so that industries can more easily generate electricity for their own consumption.
The amendments seek to align the captive generation regime with modern corporate structures and evolving industrial energy needs, particularly as companies increasingly invest in non-fossil fuel-based captive power projects.
By clarifying ownership provisions, simplifying rules for group captive arrangements and establishing a clear verification mechanism, the amendments aim to reduce regulatory ambiguity and disputes. Several provisions in the rules have also been simplified for ease of compliance. A new provision has been added to prevent the imposition of charges on captive consumers by distribution licensees while verification of captive status is pending, according to the statement.
The definition of ownership has been clarified to include subsidiaries, holding companies and other subsidiaries of the holding company of the entity that establishes the captive generating plant. This clarification recognises modern corporate structures where power assets are often developed through group entities or special purpose vehicles and ensures that legitimate captive investments by corporate groups are not denied captive status merely due to organisational structuring, the statement said.
The amendments also introduce a uniform verification period, under which captive status will be verified for the entire financial year, ensuring clarity and uniformity in implementation. In cases involving the first or last year of ownership of a captive generating plant, verification may be carried out for the relevant part of the financial year, according to the statement.
Greater flexibility has been provided for captive plants established through an Association of Persons (AoP). Captive users will be able to draw power according to their operational requirements while complying with statutory ownership and consumption conditions. Consumption exceeding the proportionate entitlement of an individual user will not result in disqualification of captive status for the plant, although such excess consumption will not qualify as individual captive consumption, the statement said.
However, the excess consumption will still count towards the collective captive consumption qualifying requirement of the group. Where a member of the AoP holds 26 per cent or more ownership, the proportionate consumption requirement will not apply to that entity and its entire consumption will be treated as captive consumption, the statement added.
The amendments also provide for a clearer institutional mechanism for verification. From April 1, 2026, State or Union Territory governments may designate a nodal agency for verification of captive status in cases of intra-state captive consumption. For inter-state captive consumption, verification will be undertaken by the National Load Despatch Centre, according to the statement. A grievance redressal committee will also be constituted by the appropriate government to address disputes arising from verification decisions.
The rules also clarify the treatment of Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS). Pending verification of captive status, CSS and AS will not be levied if captive users submit the prescribed declaration in accordance with procedures issued by the relevant authorities.
If a generating plant subsequently 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 the Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, the statement said.
To facilitate smooth implementation, certain provisions relating to proportionate consumption in AoP structures, the verification framework and the treatment of CSS and AS will come into effect from April 1, 2026, while other amendments will take effect immediately.
The government said the amendments are expected to promote ease of doing business, enable industries to access reliable and cost-competitive electricity through captive generation, reduce regulatory ambiguities and disputes, and encourage greater investment in captive and non-fossil fuel-based energy projects. The reforms will strengthen industrial competitiveness and support India’s transition towards a sustainable energy future, the statement added.
