Captive power plant

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Guide to Electricity Laws In India
Based on The Electricity Act,2003
Raj Singh Niranjan
Dr. Gopal Energy Foundation

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PART-B
DEVELOPMENT OF ELECTRICITY MARKET
Chapter – 5
Captive Power Plants

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ABBREVIATIONS/ ACRONYMS
AOP Association of Person
BOI Body of Individuals
CEA Central Electricity Authority
DERC Delhi Electricity Regulatory Commission
PPA Power Purchase Agreement
TABLE OF CASES
-
TABLE OF STATUTES
CEA Technical Standards for Communication system in power systems operations
Regulations, 2020
CEA Technical Standards for distributed Generating sources Regulations, 2013
CEA Technical Standards for construction of electrical plants and electrical lines
Regulations, 2010
DERC (Grant of consent for captive power plants) Regulations, 2002
General Clauses Act, 1897
Income Tax Act, 1961
Noise Pollution (Regulation and Control) (Amendment) Rules, 2010
Policy on Hydro Power Development, 1997
Public Liability Insurance (Amendment) Act, 1992
The Constitution of India, 1950
The Electricity Act, 2003
The Electricity Rules, 2005
The General Clauses Act, 1897
The Income Tax Act, 1961
The Rajasthan Solar Policy, 2019
The United Nations Framework Convention on Climate Change, 1992 (Kyoto Protocol)
GLOSSARY
-
BIBLIOGRAPHY
Guide to Electricity Laws in India, Raj Singh Niranjan, Published by Universal Publication,
2003 Edition, 2013 Reprint Edition
CREDITS
Mr. Raj Singh Niranjan
Dr. Rajni Patel
Ms. Simran Singh
Ms. Jewel Bhateja
Ms. Pooja Lakshmi
Ms. Ayushi Dikshit

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Chapter – 5
Captive Power Plants
Captive Generating Plant
Section 2 (8) of the Electricity Act, 2003 specifically defines the Captive Generating Plant.
Same is reproduced herein for convenience:
"Captive generating plant" means 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.
To classify a power plant as a captive power plant following conditions must be satisfied:
1. “Person”- It must be set up by a person which includes any company or body corporate
or Association or body of individuals whether incorporated or not or Artificial judicial
person.
2. “Primarily for his own use”- The generation and cogeneration in the plant must be
primarily for self-use of the person who is setting up the plant. The word primarily
needs to be further clarified. For the purpose of this section beside the person defined
in section 2(49), “person” will include any cooperative society or Association of person
but the electricity generated must be used primarily for the member of such cooperative
society.
Interestingly, blanket relaxation to cooperative society or association to distribute and generate
power to its member has led to distribution licensee to loosing industrial consumers who are
cross subsidizing the agriculture and other financially weaker section of the society.
Definition of Captive Generating Plant
The Electricity Rules, 2005 in Rule 3 stipulates the Requirements of Captive Generating Plant
as per the said Rule for any Power plant to qualify as a Captive Generating Plant under the
above-mentioned provisions under the Electricity Act there are two condition precedents:
1. 26% of ownership with captive user(s) (26% equity shares); and
2. 51% usage by captive users (aggregate usage)

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Any generating plant which fulfills both the above elements can be said to be a captive
generation plant whether, wind, solar, thermal etc. including Rooftop Solar Systems. The same
is provided below-
3. Requirements of Captive Generating Plant. -
(1) No power plant shall qualify as a ‘captive generating plant’ under section 9 read
with clause (8) of section 2 of the Act unless-
(a) in case of a power plant -
(i) not less than twenty six percent of the ownership is held by the captive user(s), and
(ii) not less than fifty one percent of the aggregate electricity generated in such plant,
determined on an annual basis, is consumed for the captive use:
Provided that in case of power plant set up by registered cooperative society, the
conditions mentioned under paragraphs at (i) and (ii) above shall be satisfied
collectively by the members of the cooperative society: Provided further that in case of
association of persons, the captive user(s) shall hold not less than twenty six percent of
the ownership of the plant in aggregate and such captive user(s) shall consume not less
than fifty one percent of the electricity generated, determined on an annual basis, in
proportion to their shares in ownership of the power plant within a variation not
exceeding ten percent;
(b) in case of a generating station owned by a company formed as special purpose
vehicle for such generating station, a unit or units of such generating station identified
for captive use and not the entire generating station satisfy (s) the conditions contained
in paragraphs (i) and (ii) of sub-clause (a) above including -
Explanation: -
(1) The electricity required to be consumed by captive users shall be determined with
reference to such generating unit or units in aggregate identified for captive use and
not with reference to generating station as a whole; and

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(2) the equity shares to be held by the captive user(s) in the generating station shall not
be less than twenty-six per cent of the proportionate of the equity of the company
related to the generating unit or units identified as the captive generating plant.
Illustration: In a generating station with two units of 50 MW each namely Units A and
B, one unit of 50 MW namely Unit A may be identified as the Captive Generating Plant.
The captive users shall hold not less than thirteen percent of the equity shares in the
company (being the twenty six percent proportionate to Unit A of 50 MW) and not less
than fifty one percent of the electricity generated in Unit A determined on an annual
basis is to be consumed by the captive users.
(2) It shall be the obligation of the captive users to ensure that the consumption by the
Captive Users at the percentages mentioned in sub-clauses (a) and (b) of sub-rule (1)
above is maintained and in case the minimum percentage of captive use is not complied
with in any year, the entire electricity generated shall be treated as if it is a supply of
electricity by a generating company.
Explanation. - (1) For the purpose of this rule. -
a. “Annual Basis” shall be determined based on a financial year;
b. “Captive User” shall mean the end user of the electricity generated in a Captive
Generating Plant and the term “Captive Use” shall be construed accordingly;
c. “Ownership” in relation to a generating station or power plant set up by a company
or any other body corporate shall mean the equity share capital with voting rights. In
other cases, ownership shall mean proprietary interest and control over the generating
station or power plant;
d. “Special Purpose Vehicle” shall mean a legal entity owning, operating and
maintaining a generating station and with no other business or activity to be engaged
in by the legal entity.
De-licensing of Captive Generation
Further, Section 9 of the Electricity Act, 2003 provides the detail provisions dealing with
Captive Generation. As per the said Section 9(1) any person can construct, maintain or operate
a captive generating plant provided that he/she adhere with the Act, Rules & Regulations as

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amended, from time to time. Extract of the Section 9(1) is reproduced herein for convenience,
and reads as follows:
(1) Notwithstanding anything contained in this Act, a person
may construct, maintain or operate a captive generating plant
and dedicated transmission lines:
Provided that the supply of electricity from the captive
generating plant through the grid shall be regulated in the same
manner as the generating station of a generating company:
1
[Provided further that no license shall be required under this
Act for supply of electricity generated from a captive generating
plant to any licensee in accordance with the provisions of this
Act and the rules and regulations made thereunder and to any
consumer subject to the regulations made under sub-
section (2) of section 42.]
Many old state Legislations mandated that captive Power Plants, should operate with the
consent of government or regulatory commission. But now by virtue of Section 9, this is no
longer needed. For example, in light of Section 9, Delhi Electricity Regulatory Commission
(DERC) has repealed DERC (Grant of Consent for Captive Power Plants) Regulations, 2002.
Exemptions/ Benefits Available to Captive Power Plant
Section 9(2) of the Electricity Act, 2003 gives the right to open access to the captive generator.
Extract of the Section 9(2) is reproduced herein for convenience, follows:
(2) Every person, who has constructed a captive generating
plant and maintains and operates such plant, shall have the right
to open access for the purposes of carrying electricity from his
captive generating plant to the destination of his use:
Provided that such open access shall be subject to availability
of adequate transmission facility and such availability of
transmission facility shall be determined by the Central
Transmission Utility or the State Transmission Utility, as the
case may be:

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Provided further that any dispute regarding the availability of
transmission facility shall be adjudicated upon by the
Appropriate Commission
Further, on the careful evaluation of the Electricity Act, 2003 it is observed that Section 38
dealing with Central Transmission Utility & functions, Section 39 dealing with State
Transmission Utility & functions and Section 42 dealing with Duties of distribution licensees
and open access provides that open access cross-subsidies surcharge is not applicable to captive
generating plants.
For captive generators based on renewable sources, other benefits are also available such as
Renewable Energy Certificates, discounted wheeling and banking charges, net metering and
carbon credits under the Clean Development Mechanism under Kyoto Protocol.
To encourage generation of electricity and protect industry from overcharging of industrial
consumers (which effectively is used to cross subsidise other category of consumer) the captive
power plant has been exempted from the “cross subsidy surcharge”. Secondly, the person
operating such plant it shall have the right to open access for the purpose of carrying electricity
from the captive generating plant to the destinations of his use. However, such open access
shall be subject to availability of adequate transmission facility and such availability of
Transmission facility shall be determined by central transmission utility or state transmission
utility as the case may be.
Moreover, it has been provided that supply of electricity from captive generating plant through
the grid shall be regulated in the same manner as the generating station of a generating
company.
In case of a dispute regarding availability of Transmission facility the matter shall be
adjudicated by the central electricity regulatory Commission or the State Electricity regulatory
Commission as the case may be.
To sum it up the following benefits are available to the captive generating plants:
Under the Electricity Act, 2003-
1. Right to Open Access in accordance with the law
2. No requirement of procuring transmission license
3. No requirement of procuring distribution license

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4. Exemption on payment of Cross Subsidy Surcharge
State of exemptions in a sample – Rajasthan Additional
Further to promote setting up of Solar Power Projects for Captive use the state of Rajasthan
provides various benefits as per the Rajasthan Solar Policy, 2019. A Solar Power Project within
the premises of a consumer of Rajasthan is provides with the benefits mentioned below-
1 Capacity Up to Contract Demand of the
consumer
2 Transmission and Wheeling Charges Not Applicable
3 Banking As per clause 16.3 of the Solar
Policy, 2019
4 Electricity Duty Exempted as per clause 16.4 of
the Solar Policy, 2019 i.e. The
electricity consumed by the
Power Producer for captive use
within the State under clause 7.1,
10.3.1, 10.3.2, 11.4 & 13(iv) will
be exempted from payment of
Electricity Duty for 7 years from
COD.
5 Additional Surcharge Not Applicable
6 Cross Subsidy Surcharge Not Applicable
7 Contribution towards Rajasthan
Renewable Energy Development Fund
Not Applicable
Additional benefits under Rajasthan Solar Policy, 2019:
1. Exemption on payment of Additional Surcharge
2. Exemption on payment of Electricity Duty
3. Contribution towards Rajasthan Renewable Energy Development Fund

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Group Captive Generating Plant
A group captive power plant is not defined in any statute. However, a group captive scheme is
where someone develops a power plant for collective usage of many commercial consumers.
They are also governed by Section 9 of the Electricity Act, 2003.
Unlike an individual captive power plant, Group captive power plant is a unique structure
where a developer sets up a power plant for collective use of many users (industrial/
commercial/ otherwise) who should have at least 26 per cent equity in the plant and the users
must consume more than 51 per cent of the power produced.
Proviso 2 of Rule 3(1) of the Electricity Rules, 2005 is reproduced herein below-
“Provided further that in case of association of persons, (emphasis provided) the
captive user(s) shall hold not less than twenty six percent of the ownership of the plant
in aggregate and such captive user(s) shall consume not less than fifty one percent of
the electricity generated, determined on an annual basis, in proportion to their shares
in ownership of the power plant within a variation not exceeding ten percent;”
As a practice when two or more user companies join hands to act in the capacity of association
of person and establish a captive power plant fulfilling the two criteria of twenty-six plus
percent of equity ownership and usage of fifty one percent of power on annual basis. It is in
practice referred to as group captive power plant.
The proviso also clarifies that the association members (user companies) which may be
companies are required to consume the electricity generated in proportion of their shares in the
ownership of the power plant within a variation not exceeding 10 percent. The legal definition
of person as per the General Clauses Act, 1897 is reproduced herein below-
Section 3(42) of the General Clauses Act, 1897 defines person as a company or
association or body of individuals whether incorporated or not.
Further the definition of association of person as per the Income Tax Act, 1961 is as follows-
Section 2(31) of the Income Tax Act, 1961 defines association of person or body of
individuals as a “person” whether incorporated or not. It is treated as a separate entity
for the purpose of assessment under the Income-tax Act. An AOP or BOI shall be
deemed to be a person, whether or not, they were formed or established or incorporated
with the object of deriving income, profits or gains.

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Special Purpose Vehicle
Rule 3(1)(b) of the Electricity Rules, 2005 provides as follows-
“(b) in case of a generating station owned by a company formed as special purpose
vehicle (emphasis provided) for such generating station, a unit or units of such
generating station identified for captive use and not the entire generating station satisfy
(s) the conditions contained in paragraphs (i) and (ii) of sub-clause (a) above including
-…”
Rule 3(1)(b) also provides for the definition of the Special Purpose Vehicle, which is
reproduced below for the sake of convenience-
“d. “Special Purpose Vehicle” shall mean a legal entity owning, operating and
maintaining a generating station and with no other business or activity to be engaged
in by the legal entity.”
Special purpose vehicle can also be constituted by the user company for owning, operating and
maintaining a captive generating station. Wherein the user uses 51% plus power.
Energy Dialogue with Raj Singh Niranjan
It will be a dream come true if every family can be self-reliant for its own energy consumption.
This can be extended to juristic personalities like a company or registered commercial
establishments and non-profit organisations. Recognition of captive generation power plants is
a move in this direction. On the national level, we call it Atma-Nirbhar Bharat or Self-Reliant
India.
Captive Generation/self-generation can be classified on the basis of ownership, technology and
connectivity. On the basis of ownership, we can have captive (single-ownership) plants or
group-captive (multiple owners) plants. On the basis of technology, the captive power plants
inter alia can be coal based, gas based, diesel based, bagasse based, co-generation plant, hydro
plants, wind plants and solar plants.
On the basis of connectivity, we can classify captive power plants as stand-alone, same
premises connected to the grid or outside premises connected to the grid. Captive Power Plants
have immense power to empower individual households and organisations.

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