"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.

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.

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)

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 amended, from time to time.

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 For example, in light of Section 9, Delhi Electricity Regulatory Commission (DERC) has repealed DERC (Grant of Consent for Captive Power Plants) Regulations, 2002.

Section 9(2) of the Electricity Act, 2003 gives the right to open access to the captive generator.

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.

1. Right to Open Access in accordance with the law
2. No requirement of procuring transmission license
3. No requirement of procuring distribution license
4. Exemption on payment of Cross Subsidy Surcharge

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.

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.