Regulatory note 01 · FY 2026-27

The captive rulebook has been rewritten — what the Electricity (Amendment) Rules, 2026 actually change

G.S.R. 186(E) substitutes Rule 3 of the Electricity Rules, 2005 in its entirety. The 26% and 51% thresholds survive untouched; almost everything around them has moved — including a new hard ceiling on each user's consumption.

4 August 2026

On 13 March 2026 the Ministry of Power notified the Electricity (Amendment) Rules, 2026 — G.S.R. 186(E) — substituting Rule 3 of the Electricity Rules, 2005 in its entirety. It is the deepest rework of the captive generating plant framework since 2005, and it lands squarely on the structure a Group Captive solar project is built on.

The two headline thresholds did not move. Nearly everything around them did.

26%

Minimum ownership by captive users — unchanged

51%

Minimum captive consumption each year — unchanged

100%

New ceiling on each user’s proportionate consumption

1 Apr

Date proportionality and verification switch on

Two commencement dates, not one

Most of the substituted Rule 3 took effect the day it was published. The provisions that actually cost money — the individual consumption cap and the entire verification regime — were held back to the start of the financial year.

Provision	Rule	In force from
Definitions — captive user, ownership, SPV, group aggregation	`3(1)`	13 Mar 2026
The 26% / 51% twin test	`3(2)(a)`	13 Mar 2026
Unit-level identification for SPV-owned stations	`3(2)(b)`	13 Mar 2026
Collective satisfaction by AoP and co-operative societies	`3(2)(c), (d)(i)`	13 Mar 2026
Consequence of failing the collective 51% test	`3(3)`	13 Mar 2026
Individual proportionate consumption cap	`3(2)(d)(ii)`	1 Apr 2026
Exemption for a captive user holding 26% or more	`3(2)(d)(iii)`	1 Apr 2026
Verification authorities, procedure and appeal	`3(4)(a), (b)`	1 Apr 2026
Suspension of CSS and AS pending verification	`3(4)(c)`	1 Apr 2026

Rule 1(2), Electricity (Amendment) Rules, 2026

Why the split matters: the structural changes are already live and apply to FY 2025-26. The pricing consequences begin with FY 2026-27. Any project reaching commercial operation during FY 2026-27 will be assessed under the full regime from day one.

What actually changed

Read this as the core of the note. The left column is the position under the pre-amendment Rule 3 as interpreted by the Supreme Court in Dakshin Gujarat Vij Co. Ltd. v. Gayatri Shakti Paper & Board Ltd.; the right column is the position under G.S.R. 186(E).

Test	Before — pre-13 March 2026	After — G.S.R. 186(E)
Individual consumption floor	Every captive user had to consume in proportion to its ownership. The Supreme Court read this as a Unitary Qualifying Ratio: 1.96% of generation for every 1% of equity, with a ±10% band.	Relaxed. No individual minimum at all. A user may consume far below its proportionate share without penalty and without affecting anyone else.
Individual consumption ceiling	Effectively 110% of the proportionate share, via the ±10% band around the UQR.	Tightened. A hard 100% of proportionate consumption. The September 2025 draft had proposed 110%; the notified rule removed the headroom.
Effect of one user breaching	That user’s consumption could be excluded from the aggregate, which could pull the plant below 51% and strip captive status from the entire project.	Relaxed. Plant-level status is unaffected. Only that user’s excess energy is re-characterised and surcharged — the single largest de-risking in the amendment.
Plant qualification test	Contaminated by individual non-compliance; the aggregate could only be built from compliant consumption.	Relaxed. Purely collective. Ownership and consumption are tested for all captive users taken together.
Excess energy in the 51% count	Disqualified energy fell out of the aggregate entirely.	Relaxed. Excess still counts toward the collective 51%, even though it does not qualify as that user’s captive consumption.
Status of an SPV	Treated as an Association of Persons by case law only, after sustained argument that corporate SPVs sat outside the AoP proportionality tests.	Codified. Express deeming provision: an SPV is an Association of Persons. The argument is closed, and every SPV-structured group captive project runs on the AoP track.
Group companies	Flexibility introduced in June 2023 but contested in practice — whether a holding company or fellow subsidiary could consume against the SPV’s equity was litigated.	Codified. A company, its subsidiaries, its holding company and that holding company’s other subsidiaries are one captive user, for both ownership and consumption.
Meaning of ownership	Undefined in detail; disputes over whether indirect and group-held stakes counted.	Defined. Proprietary interest and control, or equity share capital carrying voting rights — held directly or through group entities. Non-voting instruments and shareholder loans count for nothing.
Multi-unit stations	The whole generating station was the unit of assessment.	New. An SPV may identify a unit or units as the captive plant. Captive users then need 26% of only the proportionate equity — 13%, say, where one of two equal units is identified.
Energy storage	Not addressed.	New. Consumption through an Energy Storage System that stores energy from the captive plant is expressly captive use.
Verification authority	No codified mechanism in Rule 3; practice varied by State and generated the bulk of the litigation.	New. State nodal agency for intra-State, NLDC for inter-State, with appeal to a Grievance Redressal Committee.
CSS and AS while verification is pending	No standing relief; surcharges commonly levied and recovered later through dispute.	Relaxed. Not levied, provided a declaration is filed. If verification later fails, CSS + AS become payable with carrying cost at the LPS base rate under the 2022 LPS Rules.
Assessment period	Annual, but the anchor period was itself disputed.	Codified. The financial year, stated expressly throughout the rule.

Each entry in the After column is tagged by direction of change — relaxed, tightened, codified, or newly introduced. The amendment does all four at once.

The cap, and the arithmetic nobody mentions

Each captive user’s eligible captive consumption is capped at its proportionate share of what the captive block actually consumed. The formula is set out in Schedule III of the notification.

Eligible_i = Y × ( x_i ÷ X )

xᵢ: User i's percentage ownership in the plant
X: Total ownership held by all captive users
Y: Total actual consumption by all captive users, as % of ex-bus generation

The cap is relative, and it is set after the fact. Note what the formula does not contain: any absolute number. It normalises against the captive block X, not against total generation — so what governs is each user’s share within the captive group, not its share of the company. And because Y is the year’s realised aggregate, no user knows its own ceiling until the financial year closes. One useful corollary: a higher aggregate lifts every user’s ceiling, so all captive users share an interest in maximising total captive offtake, not merely in clearing 51%.

Why a mismatched structure leaks every single year

The eligibility limits sum to exactly Y — and so do the actual consumptions. It follows that if any captive user consumes below its cap, another must be above it. There is no configuration in which everybody under-consumes. The notification’s own worked example demonstrates it: ownership 15 : 10 : 5, aggregate consumption 70% of generation.

Consumption and eligibility cap, as % of ex-bus generation · Ownership 15 : 10 : 5, aggregate captive consumption 70% · Source: G.S.R. 186(E), Schedule III, Example 1

The escape hatch — Rule 3(2)(d)(iii). A captive user holding not less than 26% ownership in the power plant is outside the proportionality regime altogether. Its entire actual consumption qualifies, however far above its proportionate share it runs. Schedule III, Example 3 makes the point bluntly: A holds 30%, the formula caps it at 58.2%, A consumes 80% — and all 80% qualifies. For a project with one dominant offtaker, taking that offtaker to 26% is the structurally dominant answer. It converts an annual settlement risk into a one-time cap-table decision.

Two levels of failure, wildly different in cost

The amendment’s central design move is to separate these two. Under the old rule they were entangled, which is what made group captive projects fragile.

Level	What triggers it	What it costs
Plant — Rule 3(3)	The collective 51% is not met for the financial year	The entire electricity generated by the plant is treated as supply by a generating company, and CSS and additional surcharge are levied on it. Read the drafting carefully: not the shortfall, not the captive share — the entire generation. This is the outcome the whole structure should be engineered to avoid.
Individual — Rule 3(2)(d)(ii)	One user consumes above 100% of its proportionate share	Only the excess is treated as supply by a generating company; CSS and AS apply to that slice alone. Plant-level captive status is untouched, no other user is affected, and the excess still counts toward the collective 51%. Contained, recurring, and quantifiable in advance.

Where the obligation sits: Rule 3(3) places the duty to ensure compliance expressly on the captive user, not on the generator. That allocation should be mirrored in the power purchase and shareholders’ agreements rather than left to the rule.

A verification regime, for the first time

Rule 3 previously contained no verification mechanism at all. That vacuum produced most of the sector’s litigation. The amendment fills it.

Where the plant and its captive users sit	Verifying authority	Procedure
Within one State	State nodal agency	Issued by that agency
Across more than one State	NLDC	Issued by NLDC with Central Government approval
On appeal	Grievance Redressal Committee	Constituted by the Appropriate Government — a defined appellate route, replacing ad hoc recourse to the State Commission

The notification also sets out who verifies what during the changeover:

Consumption	Period	Verifying authority
Inter-State	Up to FY 2025-26	Central Electricity Authority
Inter-State	FY 2026-27 onwards	NLDC
Intra-State	FY 2026-27 onwards	State nodal agency

Surcharges are suspended, not waived. Pending verification, CSS and AS are not levied — provided the captive users file a declaration in the form prescribed by the nodal agency or NLDC. If the plant then fails verification for that year, both surcharges become payable as determined by the State Commission, together with carrying cost at the base rate of Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. The relief is real, but it converts a cash-flow question into a contingent liability. It should be disclosed and provisioned, not treated as an exemption.

Six things the notification does not settle

The amendment closes a great deal of argument. These are the seams that remain, and each is capable of becoming the next round of dispute.

Part-year verification has no operative anchor. The concession for the first or last year of ownership appears only in the Explanatory Note. The substituted Rule 3 fixes the financial year as the assessment period with no carve-out. Explanatory notes are not operative law — every plant commissioned mid-year is relying on guidance a licensee can contest.
“Unit” is undefined for a solar plant. Rule 3(2)(b) and its illustration are drafted around discrete thermal units. Whether an inverter block, an array section or a metered sub-plant qualifies as a unit is untested. Anyone building a unit-level carve-out into a PV project is on unsettled ground.
Is the 26% exemption tested on a weighted average? Sub-clause (iv) applies weighted-average shareholding to proportionate consumption. Sub-clause (iii) simply says a user who holds not less than twenty-six per cent is exempt, with no temporal qualifier. A user at 30% for eight months and 22% for four is in undefined territory.
“Proprietary interest and control, or voting equity.” The conjunction in the first limb invites the argument that voting equity alone is insufficient where the holder plainly lacks control — which is the fact pattern in most group captive structures, where the offtaker holds 26% and exercises none.
Nodal agency machinery does not yet exist in most States. Until a State designates its agency and publishes a procedure, the declaration that suspends CSS and AS has no prescribed form. There is a practical risk of levy in the interim on the ground that no valid declaration was filed.
Intra-State legacy years are unaddressed. The transition allocates inter-State verification for periods up to FY 2025-26 to the CEA, but says nothing about intra-State verification for those same years. A gap that matters for any project already operating.

What developers and offtakers should do about it

The amendment rewards structures that are designed deliberately and punishes those that are assembled opportunistically. Six practical consequences.

Only consuming entities’ equity counts toward 26%. Equity held by financial investors who draw no power from the plant contributes nothing to the ownership test. Confirm that the captive block clears 26% of voting equity on a weighted-average basis across the whole financial year — not at a point in time.
Check the equity-to-loan split before anything else. Shareholder loans, preference shares and unconverted debentures are invisible to the ownership definition. A structure funded heavily through debt instruments can leave the captive block thin in voting-equity terms even where the offtaker’s economic contribution looks more than adequate.
Take the anchor offtaker to 26% if you can. It removes proportionality entirely for that user and immunises the structure against generation variance, seasonality and demand swings. For a single-offtaker project this is the cleanest available answer, and it is a one-time decision rather than an annual exposure.
Where multiple offtakers each sit below 26%, align equity to expected offtake. By the arithmetic above, any divergence between the consumption split and the equity split produces surcharged energy somewhere in the structure — every year, by construction. Either match the ratios contractually and revisit them when load profiles change, or accept and price the leakage.
Time equity infusions against the financial year. New investors entering mid-year dilute the offtakers’ weighted-average shareholding for that entire year. Where a structure relies on the 26% exemption, an infusion that drags the anchor offtaker’s weighted average below 26% removes the exemption retrospectively for the full year — not from the date of dilution.
Offtake concentration is now a two-sided risk. Too little contracted load threatens the collective 51% test, whose failure is catastrophic and plant-wide. Too much load concentrated in a single sub-26% offtaker generates surcharged excess, which is contained but recurring. Both need to be modelled — the amendment does not let you optimise for one and ignore the other.

Sources. Prepared from G.S.R. 186(E), Ministry of Power, dated 13 March 2026, published in the Gazette of India (Extraordinary), Part II — Section 3(i), No. 180, together with the Explanatory Note issued with it. Comparative statements of the pre-amendment position and references to Dakshin Gujarat Vij Co. Ltd. v. Gayatri Shakti Paper & Board Ltd. (C.A. Nos. 8527–8529 of 2009) draw on published commentary and should be verified against G.S.R. 688(E) dated 19 September 2025 before being relied upon in any filing or submission.

Scope. These Rules govern qualification as a captive generating plant and therefore eligibility for exemption from cross-subsidy and additional surcharge. They do not alter wheeling charges, wheeling and transmission losses, banking terms or the quantum of any surcharge — all of which remain within the jurisdiction of the relevant State Electricity Regulatory Commission and must be read alongside the applicable State open access regulations and tariff order.

Disclaimer. This note is a summary prepared for information and internal discussion. It is not legal, tax or investment advice, and no reader should act on it without taking advice on their own facts. Celestio Solar Energy Private Limited accepts no liability for reliance placed on this note.

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