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Answer first: A captive power plant is a generating plant set up to supply electricity primarily to its own owners rather than to the grid at large. In India, a plant qualifies as captive only if at least 26% of its ownership is held by the users who consume from it, and those users consume at least 51% of what it generates during the financial year. Meeting both tests means cross-subsidy surcharge is not leviable on that consumption. The Electricity (Amendment) Rules, 2026, notified on 13 March 2026, left both percentages untouched — but changed how they are applied where several users share one plant, which is the change that matters commercially. |
Captive is the highest-commitment way an Indian business can buy electricity, and the most rewarding when it works. It is also the route with the most compliance surface, and the one where the rules changed most recently. This page sets out what the law requires, what the March 2026 amendment changed, who verifies compliance now, and what happens when a structure fails a test.
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Definition — captive generating plant (Electricity Act, 2003, Section 2(8)): “A power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association.” |
Two things are worth noticing about that definition. The statutory phrase is “primarily for his own use” — and the words “26%”, “51%”, “group captive” and “special purpose vehicle” appear nowhere in it. Section 9 of the Act then does the enabling work: notwithstanding anything else in the Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines; no licence is required for supply from such a plant to a licensee, or to a consumer subject to the open access regulations; and the captive user has a right to open access to carry the electricity to where it is used. That right carries a condition worth knowing: it is subject to the availability of adequate transmission capacity, as determined by the central or state transmission utility.
The qualifying tests sit in the Rules, not the Act. Rule 3 of the Electricity Rules, 2005 — as substantially rewritten in March 2026 — provides that no plant qualifies as captive unless not less than 26% of the ownership is held by the captive user or users, and not less than 51% of the aggregate electricity generated in the plant, during the financial year, is consumed for captive use.
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The two tests |
What it means |
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26% ownership |
At least 26% of the plant must be owned by the people who consume from it. “Ownership” means proprietary interest and control, or equity share capital carrying voting rights — the two-limb test the Supreme Court applied in 2023 — and, since the 2026 amendment, that holding may be held directly or through a subsidiary, a holding company or a fellow subsidiary. It is an ownership test, not a consumption test. |
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51% consumption |
At least 51% of what the plant generates across the financial year must be consumed by those owner-users. It is measured in aggregate over the year — not monthly, not instantaneously, and not at a point in time. “Captive use” includes electricity consumed through a storage system charged from that plant. |
On the ownership test, the Supreme Court has held that the 26% must be met and satisfied collectively and continuously through the financial year, from 1 April to 31 March, rather than checked at year end alone. Where shareholding changes mid-year, a weighted average is used. On the consumption test, 51% is a floor with no ceiling — “not less than” sets a minimum, so a user owning 26% and consuming 51% qualifies, and so does a sole owner consuming 51%.
One further point, established by the appellate tribunal in 2024: the consumption test is plant-specific. Generation cannot be aggregated across two or more plants to reach 51%. That case was decided on the pre-amendment wording, but the amended rule keeps the words “in such plant”, so the position should carry. For how captive sits alongside the rest of the system, see our explainer on how India's electricity value chain is organised.
No. “Group captive” is market shorthand. The Act speaks of a “co-operative society or association of persons”, and the Rules now also define a special purpose vehicle as a legal entity established for the sole purpose of owning, operating and maintaining a generating station and nothing else. An SPV is expressly treated as an association of persons.
What people mean by group captive is the arrangement where several unrelated industrial consumers each take a shareholding in one generating entity and each draw electricity from it. It is attractive because it puts the 26% threshold within reach of a business whose load could never justify owning a whole plant. It has historically been fragile for exactly the reason the 2026 amendment addresses.
The headline in most coverage was that the captive rules were “liberalised”. That is true but imprecise. The percentages did not move. What moved is how the tests are applied when more than one user shares a plant.
Under the old rule, each captive user in an association of persons had to consume broadly in proportion to its shareholding — within a variation not exceeding ten per cent. The Supreme Court worked that into a unitary qualifying ratio of roughly 1.96% of consumption for every 1% of shareholding, with a permissible band either side. The practical effect was narrow: a single member consuming materially more or less than its share could put the whole structure's captive status in question. The Ministry's own explanatory note makes the same point, saying a narrow reading of the rule had blocked legitimate group and SPV structures.
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What the amended Rule 3 now says |
Why it matters |
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The 26% and 51% conditions “shall be satisfied collectively by all the captive users”, and aggregate consumption by all of them is what is tested. |
The plant qualifies on the group's combined position, not on each member individually clearing a proportionality test. |
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An individual user's captive consumption is admissible “only up to one hundred per cent of its proportionate consumption”, calculated against its share of total captive ownership. Effective 1 April 2026. |
A ceiling replaces a band. A member may consume less than its proportionate share without difficulty; it may not consume more and have the excess treated as captive. |
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Where a captive user holds not less than 26% ownership, the proportionate-consumption ceiling does not apply to it. Effective 1 April 2026. |
An anchor investor at or above 26% is freed from the individual ceiling. It still has to satisfy the plant-level conditions. |
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Where ownership varies during the year, proportionate consumption is determined on the weighted average shareholding for that financial year. |
Mid-year share transfers no longer create a cliff edge. |
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A captive user, its subsidiaries, its holding company and that holding company's other subsidiaries are “collectively treated as a single captive user”. |
Group structures are consolidated. This helps the arithmetic and caps the group jointly — it cuts both ways. |
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Where an association of persons is involved, consumption by an individual user in excess of its proportionate entitlement is treated as supply by a generating company, and surcharges are levied on that excess. |
This is the biggest change of all. One member's overdraw no longer contaminates the whole plant. The exposure is ring-fenced to the excess. |
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The consequence most explainers have not caught up with: The ten per cent variation band no longer exists in Rule 3. Neither does the unitary qualifying ratio built on it, for financial years governed by the amended rule. Anything still leading with “consumption must be within ±10% of your shareholding” is describing the earlier regime rather than the current rule. That band was deleted by the 2026 Electricity Amendment Rules, and what replaced it is set out below. |
The note adds that modern corporates hold assets in special purpose vehicles with consumption spread across group companies. The amendment is, on the Ministry's own account, an attempt to fit the rule to how companies are actually built.
Timing matters here, and it is less tidy than most coverage suggests. The two individual-proportionality clauses and the whole verification framework take effect from 1 April 2026 — that is, from FY 2026-27. Everything else, including the deletion of the ten per cent band, came into force on publication on 13 March 2026, eighteen days before FY 2025-26 ended, and the Rules contain no savings provision for that year. So a full-year test for FY 2025-26 straddles two versions of the rule. Anyone assessing that year should treat how it is measured as a live question and take advice on it, rather than assuming either the old band or the new ceiling applies cleanly.
This is the part that changes day-to-day compliance, and the part most explainers treat only in passing.
From 1 April 2026, where a plant and its captive users sit in the same state, verification is carried out by a nodal agency designated by the State Government, under a procedure that agency issues. Where the plant and its users sit in more than one state, verification is carried out by the National Load Despatch Centre under a procedure it issues with Central Government approval. An appeal lies to a Grievance Redressal Committee constituted by the appropriate government.
That is a change of forum. Inter-state verification previously ran through the Central Electricity Authority under a procedure it issued, and intra-state practice varied, with some state commissions issuing procedures of their own. The Ministry's explanatory note sets out the handover cleanly: verification of inter-state captive consumption for electricity consumed up to FY 2025-26 is to be undertaken by the Central Electricity Authority, and from FY 2026-27 onwards by the National Load Despatch Centre.
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The safe harbour, and its condition: The amended rule provides that pending verification for a financial year, cross-subsidy surcharge and additional surcharge shall not be levied — but only “subject to the declaration furnished by the captive user(s)” under the nodal agency's or the NLDC's procedure. No declaration, no safe harbour. And if the plant then fails verification for that year, the applicable surcharges as determined by the State Commission become payable, together with carrying cost at the base rate of late payment surcharge. |
That provision is worth reading closely, because it answers the question every buyer asks and the pages we reviewed did not. Liability on a failed verification relates back to the financial year under assessment. The consumption has already happened; the surcharge attaches to it, with carrying cost. The Rules do not use the word “retrospective”, and they do not reopen years before they took effect — but within the year under assessment, this is not a prospective-only exposure.
How verification is actually carried out is itself being litigated. In June 2026 the Karnataka High Court quashed clause 6.7 of that state commission's captive verification procedure, striking down a “dynamic” version of the unitary qualifying ratio as contrary to the Rules and to the Supreme Court's construction of them, and directed the commission to frame a fresh procedure after due consultation. That is a Karnataka position and it does not change Rule 3. It is a useful signal all the same: verification procedures written before March 2026 may not survive contact with the amended rule.
There are now two distinct failure modes, and the difference between them is the single most useful thing in the amendment.
Before March 2026 the second situation could escalate into something resembling the first. That is what changed. For a buyer evaluating a group captive structure, the question to ask the sponsor is no longer only “what is my proportionate entitlement” but “what happens contractually when a co-shareholder overdraws, and who bears the surcharge on their excess”.
The exemption is narrower than vendor material usually implies. It covers two charges. It does not cover the cost of using the network.
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Charge |
Captive |
Group captive |
Third-party open access |
DISCOM retail supply |
Cross-subsidy surcharge |
Not leviable |
Not leviable on qualifying consumption; levied on an individual user's excess over its proportionate entitlement |
Applies |
Not applicable |
Additional surcharge |
Not payable |
Same position as above |
Applies |
Not applicable |
Wheeling charges |
Applies where the distribution network is used |
Applies |
Applies |
Recovered within the retail tariff |
State transmission charges |
Applies where the state network is used |
Applies |
Applies |
Recovered within the retail tariff |
Inter-state transmission charges |
Applies where the inter-state system is used, net of the waiver in force |
Same |
Same |
Recovered in the licensee's power purchase cost |
Electricity duty |
Applies, on a state-set basis |
Applies |
Applies |
Applies |
Banking charges |
Applies where banking is used |
Applies |
Applies |
Not applicable |
Standby charges |
Applies |
Applies |
Applies |
Not applicable |
On cross-subsidy surcharge, the basis is statutory and direct. The proviso to Section 42(2) of the Act says the surcharge “shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use”.
On additional surcharge, the basis is a Supreme Court judgment of December 2021, which held that captive consumers are not liable for additional surcharge under Section 42(4). The reasoning is worth knowing: Section 42(4) bites where the State Commission has permitted a consumer to take supply from a third party, whereas captive generation is a statutory right that needs no such permission. The amended Rule 3 now proceeds on the same footing, treating both surcharges as what a valid captive arrangement avoids and what a failed one attracts.
Everything else stays. Wheeling, state transmission, electricity duty, banking and standby charges are all determined at state level and vary considerably — by state, by consumer category and by year. Electricity duty in particular is levied under state Acts that pre-date the Electricity Act, 2003, and in several states the rate basis for self-generation differs from the basis for licensee supply, so the two are not comparable like for like. Any comparison of routes that does not name your state and your category is not a comparison. For context on how prices have moved, see how Indian electricity prices have moved.
It does not change the physics of supply. A captive renewable plant generates when the resource is available, and an industrial load draws when the plant is running. Matching those two is a question about generation profile and, increasingly, storage — which is why wind-solar hybrid generation profiles and storage-backed structures show up in captive discussions.
It also does not, on its own, give you a reportable green claim. That depends on which instrument carries the environmental attribute, and self-consumed generation is treated differently from electricity sold on. We have set out what a green claim is worth under a captive arrangement separately.
Not in the way people hope. The national renewable consumption obligation framework, notified in October 2023 under the Energy Conservation Act, 2001, names captive plant users among the designated consumers it covers, alongside distribution licensees and open access consumers. Separately, state commissions commonly treat captive consumers as obligated entities under their own renewable purchase obligation regulations, made under the Electricity Act, though the detail varies by state.
The nuance that matters is favourable, and it comes from the state side. In mid-2026 the Rajasthan commission declined to exempt behind-the-meter captive solar of 1 MW and above from that state's renewable purchase obligation, while holding that renewable energy generated and self-consumed behind the meter counts towards fulfilling the obligation — so no additional procurement is needed for the self-consumed portion. That is a renewable purchase obligation decision under the Electricity Act, in one state, resting on that state's regulations. It is not a ruling on the central consumption obligation, and it is not a national rule. Check your own state.
Bigger than most people assume, and much less renewable than the conversation suggests.
The Central Electricity Authority puts captive capacity at roughly 81.7 GW as on 31 March 2025. Two qualifications travel with that number and both matter. It is an estimate; the most recent actual figure is about 80.9 GW as on 31 March 2024. And it counts the installed capacity of captive plants in industries with a demand of 0.5 MW and above — not all captive plants, and the threshold is on the industry's demand rather than the plant's size. Captive capacity is non-utility and sits outside the all-India installed capacity series, so it is additional to that figure rather than part of it.
Within that total, renewables account for about 9.1 GW, or roughly 11% of captive installed capacity — but only about 5% of captive generation, at around 12,800 GWh of roughly 235,100 GWh in FY 2024-25. Captive in India remains overwhelmingly steam and diesel.
The interesting movement is in the mix rather than the total. Captive capacity has been broadly flat since FY 2019, growing at something like 1.4% a year. Over the same period the renewable slice went from around 3.1 GW to 9.1 GW — roughly a tripling — while gas declined by about 2.5 GW and steam edged down. Diesel, it should be said, also rose, by about 4.1 GW. Captive is not growing; its mix is shifting, and not in one direction only.
For scale on the wider corporate route, cumulative installed solar capacity under open access reached about 36 GW by June 2026, with roughly 6 GW added in the first half of 2026, a 42% increase on the same period a year earlier. There is no reliable published figure for how much of India's corporate renewable capacity is specifically group captive, and we are not going to invent one. What is published, and now dated, is the qualitative observation from 2022 that group captive had become the most commonly used route because of the surcharge position — which is precisely the position the 2026 amendment was written to stabilise.
For who builds and operates this capacity, see our explainer on the independent power producer model, and on solar energy for businesses.
The regulatory position set out above is the framework, not the decision. Four things decide whether a captive or group captive structure is workable for a particular business, and none of them is the generating technology.
Businesses weighing those four against their own sites and shareholding will find the routes available set out under renewable electricity procurement for businesses.
Electricity generated by a plant and consumed by the people who own at least 26% of it. Under the amended Rules, the consumer can be the owning entity, its subsidiary, its holding company or a fellow subsidiary — all treated as one captive user — and consumption through a storage system charged from that plant counts.
Not by Rule 3. A captive solar power plant satisfies the same 26% and 51% tests as any other. What differs is the practical difficulty of the 51% test, because a variable resource generates on its own schedule rather than yours, which is where profile design and storage enter.
Yes, and many do, because the best wind and solar resource is concentrated in a few states. Two consequences follow: inter-state transmission charges enter the landed cost, net of the waiver in force at the project's commissioning; and verification of captive status falls to the National Load Despatch Centre rather than a state nodal agency.
There is no individual minimum in Rule 3. The 26% is collective across the captive users. A member holding a small percentage is a valid captive user, subject to the ceiling on its proportionate consumption — and a member holding 26% or more is exempt from that ceiling.
Ownership. Under captive you own a qualifying share of the plant you consume from, and cross-subsidy surcharge and additional surcharge are not leviable. Under third-party open access you simply buy from a generator, and both surcharges apply as determined by your State Commission. Network charges apply either way.
