BRIEF OVERVIEW OF GROUP CAPTIVE POWER PLANTS

I.

Captive Power Background:

Captive power refers to generation from a unit set up by industry for its exclusive
consumption. Industrial sector is one of the largest consumers of electrical energy in
India. To sustain and excel in the dynamic global environment, it is imperative for
the industries to ensure uninterrupted power supply for performance optimization
which subsequently led to the growth in captive power plants. A number of
industries are now increasingly relying on their own generation (captive and
cogeneration) rather than on grid supply, primarily for the following reasons:

II.

Non-availability of adequate grid supply

Poor quality and reliability of grid supply
High tariff as a result of heavy cross subsidization
Enabling Legal Provisions:

Captive power plants are a necessity for the Indian electricity scenario. The
Electricity Act 2003 has been a landmark in institutionalizing captive power. Captive
power generation also finds mention in the National Electricity Policy and the
Electricity Rules 2005. Some of the important provisions highlighting captive power
are listed below:

Provisions for Captive Power Plants in Electricity Act 2003o Captive generating plant is defined under Section 2 (8) as It is 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 cooperative society or association of persons
for generating electricity primarily for use of members of such cooperative society
or association.
o Section 9 (1) further stipulatesa person may construct, maintain or operate
a captive generating plant and dedicate transmission lines. It also provides that
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.
o

Section 42 (2) states that surcharge (for meeting the requirements of crosssubsidy) on wheeling charge shall not be leviable in case open access is

Page 1 of 4

provided to a person who has established a captive generating plant for

carrying the electricity to the destination of his own use.

Provisions for Captive Power Plants in National Electricity Policy- In

consonance with the Electricity Act 2003, the National Electricity Policy
emphasizes that
o Article 5.2.24: The liberal provision in the Act with respect to setting up of
captive power plant has been made with a view to not only securing reliable,
quality and cost effective power but also to facilitate creation of employment
opportunities through speedy and efficient growth of industry.
o Article 5.2.25: The provision relating to captive power plants to be set
up by group of consumers is primarily aimed at enabling small and medium
industries or other consumers that may not individually be in a position to set up
plant of optimal size in a cost effective manner. It needs to be noted that efficient
expansion of small and medium industries across the country would lead to
creation of enormous employment opportunities.

Provisions for Captive Power Plants in Electricity Rules 2005- These rules
state that
Quote
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 co-operative 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
Page 2 of 4

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;
Unquote;

Further the Ownership has been defined as

Quote
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;
Unquote;

Above legal provisions made it abundantly clear that

o Any person (company) or association of persons (companies) can come
together and set up a captive generating station for own consumption.
o This group of companies collectively has to ensure that they own at least
26% of equity (with voting rights) and consume at least 51% of the
generation.

III. General Structure of a Group Captive Power Plant

SPV: A special purpose vehicle is formed for developing a group captive

power plant.
o The group of consumers collectively hold at least 26% of equity with
voting rights
o Rest of the equity is held by the promoting company (in this case-XYZ
Power Limited)

Investment: The capital structure of interested power generation plant (XYZ

Power Limited) would be divided into 3 parts:
o 1% Equity shares held by consumers and XYZ Power Limited
o 29% Preference shares held by parent i.e. XYZ Power Limited
o 70% Debt

Page 3 of 4

The group of consumers collectively needs to invest 26% of the equity. This
brings down the value of investment by an individual consumer to a very
nominal value.

XYZ Power Limited

(50.4 MW)
Debt
70%

Preference
Shares

Equity
1%

29%

XYZ Power Ltd.--- 74%

All Consumers--- 26%

Consumer 'A': (Lets say 20 MW)

Equity--- 20/50.4 of 26%

Other Consumers: (Balance 30.4

MW)
Equity--- 30.4/50.4 of 26%

Consumption: The group of consumers are expected to consume the

electricity generated from the proposed power plant within the ratio of
ownership

Energy Quantum Eligible to Supply to Group Captive Consumer(s):

Consumer gets energy quantum credit equivalent to their share of generation
only.

Page 4 of 4