Group Captive Power in India: A Complete Guide for C&I Buyers

Power procurement strategy is one of the highest-leverage decisions an industrial CFO makes. The difference between sourcing electricity at ₹8/unit from a DISCOM and ₹5/unit from a group captive arrangement, for a 5 MW consumer running at 80% load factor, is over ₹10 crore per year. Multiplied over a 25-year project life, the compounded savings are transformational.

And yet, despite the economics being unambiguous, group captive remains under-utilised in India. Part of the reason is complexity: the framework is governed by multiple layers of law, the structuring requires careful equity matching, and the annual verification has real teeth. This guide unpacks all of it.

What is Group Captive Power?

A captive generating plant is one that generates electricity primarily for the use of its owners. The term comes from Section 9 of the Electricity Act, 2003, which guarantees that a person may construct, maintain, and operate a captive generating plant — and crucially, that they may carry electricity from that plant to their place of use without being treated as a distribution licensee.

Group Captive extends this concept to multiple consumers. Rather than a single industrial buyer setting up their own dedicated power plant, multiple consumers jointly own equity in a single generating company (a Special Purpose Vehicle, or SPV) and consume the electricity it generates in proportion to their equity holding.

Group captive structures are particularly attractive for:

• Mid-sized industrial consumers (1–10 MW each) who cannot economically own a dedicated 50 MW plant individually
• Manufacturing clusters in industrial estates where multiple buyers share infrastructure
• Multi-plant corporates who want a single procurement structure across operations
• Data centres, IT parks, retail chains with predictable high baseload

The legal framework — Section 9 & Rule 3

The captive framework rests on two pillars:

Section 9 of the Electricity Act, 2003

Section 9 grants the right to set up and operate a captive plant. The critical sub-section, 9(2), provides that supply of electricity from a captive plant to any licensee shall be regulated like supply from any other generating company — but consumption for the captive user's own use is fundamentally different and protected.

Rule 3 of the Electricity Rules, 2005

Rule 3 operationalises Section 9 by defining exactly what qualifies as a "captive generating plant." For a power plant to retain captive status, two conditions must be simultaneously satisfied each financial year:

Equity condition: Not less than 26% of the ownership of the captive plant is held by the captive user(s).

Consumption condition: Not less than 51% of the aggregate electricity generated on an annual basis is consumed by the captive user(s).

Both conditions must be met every year. Falling short of either, even by a small margin, results in loss of captive status — and the resulting exposure to Cross-Subsidy Surcharge (CSS), Additional Surcharge, and back-tax can be financially severe.

The 26% / 51% rule decoded

For group captive structures with multiple consumer-shareholders, Rule 3 imposes a further layer: each consumer must consume electricity in proportion to their equity stake, within a permissible variation. The proportionality test is what trips up many captive arrangements.

Worked example: A 25 MW group captive SPV with three consumer-shareholders:

Consumer	Equity stake	Required consumption share (≥)	Permissible variation
Consumer A	40%	40% of 51% = 20.4% of total generation	±10%
Consumer B	35%	35% of 51% = 17.85%	±10%
Consumer C	25%	25% of 51% = 12.75%	±10%

Each consumer must consume their proportionate share with no more than a ±10% deviation. If Consumer A's share of consumption drops to 17% (against the required ~20.4%), the deviation exceeds 10% and the captive status of the entire plant is at risk.

CSS & Additional Surcharge exemptions

The reason captive matters so much for C&I economics is the statutory exemption from two of the largest cost components of Open Access:

Cross-Subsidy Surcharge (CSS)

CSS is a levy on open access consumers to compensate DISCOMs for the cross-subsidy that subsidised consumer categories (agricultural, residential) would have received from the high-paying industrial consumers had they stayed with the DISCOM. In most states, CSS ranges between ₹1.50–2.50 per unit.

Captive consumers carrying their own power for self-use are statutorily exempt from CSS under Section 42(2) of the Electricity Act, 2003.

Additional Surcharge

The Additional Surcharge is a separate levy designed to recover DISCOM's stranded fixed costs — power purchase agreement obligations that the DISCOM continues to pay even when its consumers move to open access. Additional Surcharge typically ranges between ₹1.20–1.80 per unit across states.

Pure captive use is also exempt from Additional Surcharge. For group captive, exemption applies provided the proportionality and consumption thresholds are maintained.

Combined, these two exemptions can deliver ₹2.50–4.00 per unit savings compared to standard Open Access. For a 5 MW consumer, that translates to ₹8–12 crore annually.

How a group captive SPV is structured

Setting up a group captive arrangement involves several coordinated steps:

1. SPV formation: A new generating company (typically Private Limited) is incorporated, with the consumer(s) holding at least 26% of its equity and the developer holding the balance.
2. Shareholders' agreement: Governs equity transfer restrictions, lock-in, exit rights, dispute resolution, and matching of equity-consumption proportions over time.
3. Power Purchase Agreement (PPA): Between the SPV and the consumer(s), fixing tariff (₹/kWh), escalation, deemed generation, payment security, and term (typically 20–25 years).
4. Connectivity: The SPV applies for connectivity with STU/CTU, books transmission capacity, and signs Bulk Power Transmission Agreement.
5. Captive status registration: The SPV registers as a captive plant with the SERC, providing the equity holding pattern, consumer details, and expected consumption shares.
6. Open access for wheeling: If the SPV is geographically remote from the consumer (intra-state wheeling), the consumer obtains long-term open access for the captive transaction.

Annual verification & compliance

Every financial year, the captive status must be verified. The State Load Despatch Centre (SLDC) examines:

• Total generation by the SPV in the year
• Quantum consumed by each captive user
• Each user's equity holding as of 31st March
• Computation of proportionate consumption share against permissible variation

If both conditions are met, captive status continues. If not, the SLDC issues a non-compliance notice — and the consumer is liable to retrospectively pay CSS, Additional Surcharge, and other applicable open access charges for that year.

Common pitfalls to avoid

• Equity ownership through trusts or LLPs: Some structures attempt to use trusts to hold equity. Many SERCs do not accept this. Equity should be held directly by the consumer entity.
• Mid-year equity changes without consumption rebalancing: If a consumer increases their equity stake mid-year, their consumption share for the full year may not align — triggering proportionality failure.
• Treating banked energy as consumed: Energy banked with the DISCOM does not count toward consumption until actually drawn down. Plan accordingly.
• Ignoring the captive verification clock: Captive verification is annual. If the test fails, the consequences apply to that full year of consumption, not just the shortfall.

Cost economics vs alternatives

For a typical 5 MW HT industrial consumer in India, indicative landed cost comparison:

Procurement route	Landed cost (₹/unit)	Savings vs DISCOM
DISCOM (HT Industrial)	₹8.20	—
Open Access (with CSS + Add. Surcharge)	₹7.50	~₹0.70
Group Captive	~₹5.00	~₹3.20
Pure Captive (100% self-owned)	~₹5.00	~₹3.20

For a 5 MW consumer at 80% utilisation, group captive savings translate to ₹11+ crore per annum — and this compounds over the typical 25-year project life.

Group captive is not the right answer for every C&I consumer. It works best when load is stable and predictable, the consumer can commit to long-term offtake, and the equity outlay (typically 26% of project capex, or ~₹50–100 lakh per MW for solar) is acceptable. For consumers with these characteristics, the question is not whether to do group captive — it's how quickly they can structure one.