Recently, there have been certain amendments to the Electricity Rules, 2005 (‘Rules’), in respect of captive generating plants (‘CGP’). In June 2023, the Government of India (‘GOI’) introduced these amendments to the Rules by way of the Electricity (Amendment) Rules, 2023 (‘June Amendment’). In view of certain issues which arose out of the June Amendment, the GOI, in September 2023, notified the Electricity (Third Amendment) Rules, 2023 (‘September Amendment’), which have, inter alia, brought about clarificatory amendments to the Rules. Key changes under the latest amendments are summarized below:

i.    Prior to the June Amendment, the Rules specified that one of the conditions for a generating unit to qualify as a CGP was that 26% of the ownership (i.e., 26% of the equity share capital with voting rights) of the entity owning the CGP should be held by its captive user(s). That is, if there were more than one captive consumer then they should collectively hold 26%. The June Amendment changed “captive users(s)” to “captive user” – which led to a confusion as to whether now every captive consumer has to hold 26% of the equity share capital of the entity owning the CGP. This would have become a material restriction on development of CGP market – including the unwieldy limitation of maximum number of captive users of any CGP not exceeding three, which could not have been the intention of the Also, the existing CGPs would have had to comply with this requirement which would have had a very adverse consequence on the existing CGP market.

By way of the September Amendment, the phrase “captive user” was replaced with “captive user(s)” and, thereby, the regulatory regime returned to where it was pre-June Amendment. Thus, the anxiety of the CGP market was quickly addressed.

ii.   June Amendment had also brought in an amendment which stipulated that if the CGP is set up by an “affiliate company” then at least 51% of the ownership of the CGP should be held by the captive user. That is, if a captive user consumed from a CGP of a non-affiliate company, then such user had to hold (along with other captive users) only 26%, but if CGP owner is an affiliate then captive user had to hold 51% – which was counterintuitive. September Amendment corrected this anomaly by removing the aforesaid stipulation.

iii.  Pre-June Amendment, the Rules required that each captive user of a CGP has to consume electricity, on an annual basis, in proportion to its shareholding in the CGP entity, subject to a variation of +/-10%, which flexibility is only available to a Group CGP, i.e., a CGP with more than 1 captive user. The June Amendment brought a change which permitted the consumption of electricity by a subsidiary of a captive user from the CGP, to be included while determining the captive consumption of such captive user. The September Amendment has gone a step further and has permitted the consumption of electricity by a holding company of a captive user from the CGP, to also be included while determining the captive consumption of such captive user. This flexibility will provide CGPs with a broader range of off-takers.

iv.   Finally, under the September Amendment, the Central Electricity Authority (‘CEA’) has been appointed as the verification authority where the CGP and the captive user(s) are located in more than one state. That is, in such cases, CEA will verify the compliance with the Rules by such CGP.