The Ministry of Power (MoP) notified the Electricity (Amendment) Rules, 2026, on March 13, 2026, substituting Rule 3 of the Electricity Rules, 2005. This amendment operationalizes Section 9 of the Electricity Act, 2003, providing a revised regulatory framework for the ownership, consumption, and verification of Captive Generating Plants (CGPs). While the statutory thresholds of 26% collective ownership and 51% collective annual consumption remain unchanged, the notification introduces technical shifts in how corporate groups and special purpose vehicles satisfy these requirements to ensure regulatory clarity and reduce litigation.
Core Thresholds and Corporate Group Ownership
The mandatory thresholds for captive status are now strictly calculated on a Financial Year basis. In cases involving the first or last year of ownership, verification is undertaken for the relevant portion of that financial year. The rules provide a refined definition of “ownership,” which is now characterized as proprietary interest and control, or equity share capital carrying voting rights, held directly or indirectly.
Under the 2026 Rules, the definition of a “Single Captive User” is expanded to align with modern corporate structures. The following entities are collectively treated as a single person for the purposes of calculating ownership and consumption:
- The primary entity.
- Its subsidiaries.
- Its holding company.
- Other subsidiaries of the same holding company (fellow subsidiaries).
Displacement of the Unitary Qualifying Ratio (UQR)
The 2026 Rules formally define a Special Purpose Vehicle (SPV) as a legal entity established solely for owning, operating, and maintaining a generating station. For regulatory purposes, SPVs are treated as an Association of Persons (AoP).
A technical pivot in this amendment is the displacement of the “Unitary Qualifying Ratio” (UQR) established by the Supreme Court in the Dakshin Gujarat Vij case. The previous “strict proportionality” regime—where a single user’s failure to consume power in exact proportion to their equity could disqualify the captive status of the entire project—has been replaced by a “collective satisfaction” model. Under the new rules, the 51% consumption threshold is assessed against the aggregate consumption of the group, ensuring that individual deviations do not result in the “all-or-nothing” disqualification of the plant.
Proportionality and Consumption Rules for AoP/SPV Projects
| Parameter | Regulatory Requirement |
| Compliance Level | Collective satisfaction of 26% ownership and 51% consumption thresholds by all captive users. |
| Individual Consumption Cap | Admissible captive consumption for users holding less than 26% is limited to 100% of their proportionate share based on ownership. |
| Anchor Investor Exemption | Proportionate consumption caps do not apply to users holding 26% or more ownership. |
| Treatment of Excess | Excess consumption is treated as non-captive supply (attracting CSS and AS) for that specific user but continues to count toward the plant’s 51% collective threshold. |
| Mid-year Changes | Calculation is based on the weighted average shareholding during the financial year. The specific mathematical formula for this calculation is pending procedural guidance from nodal agencies. |
Recognition of Energy Storage Systems (ESS)
The notification includes a provision regarding energy storage integrated with captive projects. Electricity consumed through an Energy Storage System (ESS) connected to a CGP is officially recognized as valid captive consumption. This ensures that storage-mediated energy counts toward the mandatory 51% collective consumption threshold.
Statutory Verification and Appeals Architecture
The 2026 Rules establish a two-tier verification mechanism to standardize captive status determinations:
- Intra-state projects: Verified by a State-designated Nodal Agency according to procedures issued by that agency.
- Inter-state projects: Verified by the National Load Despatch Centre (NLDC) under procedures approved by the Central Government.
Decisions made by these agencies may be appealed before a Grievance Redressal Committee constituted by the Appropriate Government. The NLDC and state nodal agencies assume their verification mandates starting from FY 2026-27. For inter-state projects, the Central Electricity Authority (CEA) will continue to handle verification for electricity consumed up to the end of FY 2025-26.
Financial Provisions and Surcharge Handling
Regarding the Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS), the rules state that these shall not be levied pending verification, provided the captive user submits a prescribed declaration to the relevant nodal agency or the NLDC. If a plant fails the verification process for a financial year, the users must pay the applicable CSS and AS, along with carrying costs calculated at the base rate of the Late Payment Surcharge as specified in the Electricity (Late Payment Surcharge and Related Matters) Rules.
Implementation Timeline
The effective dates for the Electricity (Amendment) Rules, 2026, create a transition window for industry auditing:
- General Provisions: Effective immediately (March 13, 2026).
- Proportionate Consumption and Verification Rules: Effective from April 1, 2026.
These reforms are presented by the government as a mechanism to enhance industrial competitiveness and support the factual goals of achieving 500 GW of non-fossil capacity by 2030 and the vision of Viksit Bharat @ 2047.
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