How it works
The core tests under India's Electricity Rules require captive users to hold at least 26% ownership and collectively consume at least 51% of the electricity generated for the applicable assessment period. A company may own a plant for its own use, or several consumers may participate in a group captive arrangement. Ownership through corporate groups and the treatment of each user's consumption follow the detailed rules, which were amended in March 2026.
For an association of persons, consumption above an individual user's proportionate entitlement does not by itself disqualify the whole plant. That excess is treated separately for the user's captive benefit, while counting towards the group's collective consumption test. The proportionate limit does not apply to a member holding at least 26% ownership. From financial year 2026–27, the designated state nodal agency verifies intra-state captive status and NLDC verifies inter-state cases. If the plant fails the collective qualifying tests, applicable cross-subsidy and additional surcharges, with carrying cost, become payable. Transmission, wheeling and banking charges remain subject to the applicable rules.
Why it matters
For a buyer, qualifying captive consumption avoids the cross-subsidy surcharge and can materially lower delivered cost. The structure requires ownership and consumption to be monitored together. Lower demand across the group can break the collective consumption test and bring a retrospective bill. Individual entitlements also matter, because a plant can retain captive status while some of a user's consumption falls outside the captive benefit.
A worked example
A consumer takes 30 million kWh a year that qualifies as captive consumption. At a cross-subsidy surcharge of ₹1.4/kWh, the exemption is worth 30,000,000 × ₹1.4 = ₹4.2 crore. If collective captive consumption falls to 45% of the plant's output, the 51% test fails. The ₹4.2 crore illustrates the consumer's cross-subsidy exposure alone; any applicable additional surcharge and carrying cost would be extra.
Illustrative figures.
Across markets
Captive is an Indian legal category with its own ownership and consumption tests. In the US, buyers often own generation on their own sites, but off-site supply usually runs through a PPA rather than ownership. In Europe, self-consumption rules and energy communities under EU directives let consumers share local generation, with reduced network charges in some countries.
Sources
Sources checked . Source for the March 2026 changes to group consumption, verification agencies and surcharge treatment. The detailed ownership and consumption rules determine each arrangement's treatment.