**Executive Summary**
The Government of India has amended the Electricity Rules, 2005, with the Electricity (Amendment) Rules, 2026, to clarify and strengthen the captive power framework. These amendments, finalized after extensive stakeholder consultations, aim to improve ease of doing business, support industrial competitiveness, and align with India's energy transition goals. Key provisions related to ownership, verification, and financial charges will be effective from April 1, 2026.
**Key Points / Main Content**
**1. Ownership Clarifications**
* Ownership definition expanded to include subsidiaries, holding companies, and other subsidiaries of a holding company, recognizing modern corporate structures for power asset development through group entities or special purpose vehicles.
* Ensures legitimate captive investments by corporate groups are not denied captive status due to organizational structuring.
**2. Verification Process**
* Captive status verification will be conducted for the entire financial year to ensure clarity and uniformity.
* For the first or last year of ownership, verification may be for the relevant part of the financial year.
**3. Association of Persons (AoP) Captive Plants**
* Increased flexibility for group captive projects established through an AoP.
* Captive users can draw power based on operational requirements, subject to statutory ownership and consumption conditions.
* Excess consumption by an individual user will not disqualify the plant's captive status but will count towards the group's collective requirement.
* If an AoP member holds 26% or more ownership, the proportionate consumption requirement is waived for that entity, and its entire consumption is treated as captive.
* For proportionate consumption calculation, a captive user and its subsidiaries, holding company, and other subsidiaries will be treated as a single person.
**4. Nodal Agencies for Verification**
* From April 1, 2026, State or Union Territory Governments may designate a nodal agency for intra-state captive consumption verification.
* For inter-state captive consumption, the National Load Despatch Centre (NLDC) will conduct verification.
* A Grievance Redressal Committee will be constituted by the Appropriate Government to handle disputes arising from verification decisions.
**5. Treatment of Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS)**
* CSS and AS will not be levied pending captive status verification if captive users submit the prescribed declaration to the NLDC (inter-state) or the State nodal agency (intra-state).
* If a generating plant subsequently fails verification, applicable CSS and AS will be 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.
**6. Applicability of Amendments**
* Provisions concerning proportionate consumption in AoP structures, the verification framework, and the treatment of CSS and AS will be effective from April 1, 2026.
* Other amendments will take effect immediately.
**Impact Analysis**
**Industries / Corporate Investors**
* **Impact:** Increased clarity and flexibility in the captive generation framework, enabling easier generation of electricity for own consumption. Improved ease of doing business, access to reliable and cost-competitive electricity, and reduced regulatory ambiguity and disputes. Encouragement for greater investment in captive and non-fossil fuel based energy projects.
* **Action Required:** Familiarize with new ownership requirements, verification procedures, and rules for AoP structures. Ensure timely submission of declarations for CSS and AS waiver pending verification.
**Distribution Licensees**
* **Impact:** Potential for delayed revenue collection on CSS and AS if captive status is pending verification. Need to comply with new nodal agency designation and verification processes.
* **Action Required:** Adhere to the new provisions regarding the levy of CSS and AS pending verification. Cooperate with designated nodal agencies and the NLDC for verification processes.
**Government Bodies (Ministry of Power, State/UT Governments, NLDC)**
* **Impact:** Responsibility for designating nodal agencies, conducting verification, and constituting Grievance Redressal Committees. Need to ensure smooth implementation of the amended rules.
* **Action Required:** Designate nodal agencies for intra-state captive consumption verification by April 1, 2026. Establish Grievance Redressal Committees as required. Implement verification processes as per the amended rules.
**Captive Consumers**
* **Impact:** Benefit from potential cost savings and improved electricity supply reliability through captive generation. Clearer guidelines on consumption and ownership requirements.
* **Action Required:** Understand the new rules regarding ownership and consumption, especially within AoP structures, to ensure compliance. Submit necessary declarations to avail CSS/AS waivers.
Key Entities Referenced
Electricity (Amendment) Rules, 2026: The primary policy document being amended, which introduces changes to the captive power framework.
Electricity Rules, 2005: The foundational rules being amended by the Electricity (Amendment) Rules, 2026.
Electricity Act, 2003: The overarching law under which captive power generation operates.
National Load Despatch Centre (NLDC): The designated agency responsible for verification of inter-state captive consumption.
Electricity (Late Payment Surcharge and Related Matters) Rules, 2022: Rules referenced for the calculation of carrying costs for non-compliant generating plants.
Ministry of Power
Government amends Electricity Rules to
strengthen captive power framework and
support industrial competitiveness
Posted On: 14 MAR 2026 6:13PM by PIB Delhi
Government of India has notified the Electricity (Amendment) Rules, 2026, amending Rule 3 of the
Electricity Rules, 2005 relating to Captive Generating Plants (CGPs). The amendments aim to remove
interpretational ambiguities, improve ease of doing business for industry, and align the captive generation
framework with India’s energy transition and industrial growth objectives.
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.
Indian industries are increasingly adopting non-fossil fuel based energy to meet sustainability
commitments and reduce 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.
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 the statutory safeguards relating to
ownership and consumption.
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. Many provisions in the Rules have been simplified for ease of
compliance. New provision has been added to avoid imposition of charges on the captive consumers by
the Distribution licensees pending verification of the captive status. Overall, 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 amendments have been finalised after extensive stakeholder consultations.
Key features of the amendments
1. Clearly Defined Ownership RequirementsThe 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. The amendment ensures that legitimate captive investments by
corporate groups are not denied captive status merely due to organisational structuring.
2. Uniform Verification Period
Verification of captive status will be undertaken 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 undertaken for the relevant part of the financial year.
3. Captive Plants established by Association of Persons (AoP)
The amendments provide greater flexibility in operation of group captive projects established through an
Association of Persons (AoP). Captive users will be able to draw power based on their operational
requirements, subject to overall compliance with the 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. However, such excess consumption will not qualify as
individual captive consumption but will still count towards the collective captive consumption qualifying
requirement of the group.
Where a member of the AoP holds 26 percent or more ownership, the proportionate consumption
requirement will not apply to that entity and its entire consumption will be treated as captive consumption.
For the purpose of proportionate consumption calculation, a captive user together with its subsidiaries,
holding company and other subsidiaries of the holding company will be treated as a single person.
4. Nodal Agencies for Captive Status Verification
With effect from 1st April,2026 the 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 (NLDC) .
A Grievance Redressal Committee will be constituted by the Appropriate Government to address
disputes arising from such verification decisions .
5. Treatment of Cross-Subsidy Surcharge and Additional Surcharge
Pending verification of captive status, Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS)
will not be levied if the captive users submit the prescribed declaration in accordance with the procedures
issued by the NLDC (for inter-state cases) or the State nodal agency (for intra-state cases).
If a generating plant subsequently fails to qualify as a captive generating plant upon verification, the
applicable CSS and AS will become payable along with carrying cost. The carrying cost will be calculated
at the base rate of the Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related
Matters) Rules, 2022.
6. Applicability of the Amendments
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 1st
April 2026. Other amendments will take effect immediately.
Reform for Supporting industrial growth and clean energy transitionBy enabling industries to access reliable and cost-competitive electricity through captive generation, the
reforms will strengthen industrial competitiveness and support India’s transition towards a sustainable
energy future.The reforms also align with the Government’s broader vision of energy self-reliance, while
supporting India’s vision of achieving Viksit Bharat @ 2047.
***
Nimish Rustagi
(Release ID: 2240205) Visitor Counter : 428
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