Ministry of Power Issues Draft Electricity (Amendment) Rules, 2026

On January 2, 2026, the Ministry of Power issued the consultation letter and draft notification as Electricity (Amendment) Rules, 2026 seeking to clarify and modernise India’s captive power framework.

The objective of these draft rules is to ease the use of group captive and special purpose vehicle (SPV) structures. The policy rationale provided in the explanatory note issued along with the Draft Rules, ties the amendment in the Electricity Rules, 2005 to India’s industrial competitiveness and energy transition fueled by India’s commitment to net-zero emission goals as envisaged under the Paris Agreement of 2015.

In this regard, the Draft Rules target a single but critical area: the ‘Requirements of Captive Generating Plant’ in Rule 3 of the Electricity Rules, 2005.

Key Features of the Draft Rules are as follows:

1. The Draft Rules defines an ‘assessment period’ as a financial year or another continuous period within a financial year selected by the captive user for verification protecting the captive user from rigid annual tests owing to seasonal and variable operations. Further, the definition of ‘captive user’ is broadened to include end‑users who consume electricity directly or through an energy storage system, where that storage holds energy generated from the captive plant.

2. The Draft Rules also clarify that when the captive user is a company – its subsidiaries, its holding company, and other subsidiaries of that holding company are collectively deemed a single captive user for the purposes of the Draft Rules.

3. The core ownership and consumption thresholds as mentioned in the Electricity Rules, 2005 are restated with clarificationse., a power plant will not qualify as a captive generating plant unless captive user(s) holds at least 26 per cent ownership and consume not less than 51 per cent of aggregate electricity generated during the assessment period.

4. The Draft Rules also proposes that the assessment of consumption and equity ownership can be tied to the identified unit(s) of a generating station that is used for captive consumption rather than the whole generating station. As stated in Explanation 2 of Sub-Rule 2 of the Draft Rules, the equity must be at least 26 per cent of the proportionate equity corresponding to the unit(s) that are identified as captive unit(s) in a generating station.

5. The Draft Rules treats an SPV as an Association of Persons (AoP) for captive purposes. For power plants set up by an AoP, the 26% ownership and 51% consumption conditions are to be satisfied by the AoP collectively. Further, where an individual captive user holds at least 26% ownership, the individual proportionality cap does not apply, and the captive user’s entire consumption is treated as captive consumption.

6. The Draft Rules also propose that each captive user may draw power based on its operational requirements, with eligibility for captive consumption linked to proportionate entitlement aligned with ownership, without disqualification arising from consumption above or below such entitlement.

7. However, where shareholding varies during the assessment period, proportional entitlements are determined on a weighted average basis. For proportionality calculations, a captive user and its group (subsidiaries, holding company, and the holding company’s other subsidiaries) are treated as one person.

8. The Draft Rules also clarify that consumption by an individual in excess of its proportional entitlement does not qualify as that individual’s captive consumption, but it still counts towards the collective 51% plant level captive consumption test.

9. The Draft Rules proposes verification mechanism for captive arrangements, with state nodal agencies handling intra-state cases and the National Load Despatch Centre (NLDC) managing inter-state ones under Central Government procedures. Appeals against verification decisions lie with a Grievance Redressal Committee (GRC) constituted by the Appropriate Government. Payments of cross-subsidy and additional surcharges by the power plant are suspended pending verification before the GRC. If verification fails, the plant must pay the applicable cross-subsidy surcharge and additional surcharge (as determined by the respective State Commission), plus carrying cost at the late payment surcharge rate specified in the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.

The provisions related to group captive consumption and verification in the Draft Rules will take effect from April 1, 2026 while the remaining amendments are effective immediately. The Draft Rules introduces practical clarifications to longstanding regulatory uncertainty with respect to captive power projects. In view of the same, the projects should reassess project configuration to take advantage of unit‑level identification and consumption in proportion to their ownership.