Group Captive Solar Just Changed. Here Are the Four Worked Examples the Government Published — and Nobody Else Has

If your plant buys power through a group captive structure, the rules you were compliant with in February are not the rules you are compliant with now.

On 13 March 2026 the Ministry of Power notified the Electricity (Amendment) Rules, 2026 (G.S.R. 186(E)), which substituted Rule 3 of the Electricity Rules, 2005 in its entirety. The headline numbers — 26% ownership, 51% consumption — did not change. Almost everything about how they are tested did.

For most industrial consumers this is good news, and for some it is an expensive surprise. Both halves are below.

The notification also inserted a Schedule III containing four worked numerical examples that show exactly how the arithmetic works. Every legal alert and trade article we have read mentions that Schedule III exists. None reproduces it. So here it is, with the calculations checked.

What actually changed

1. The 51% test is now collective, not per-user

This is the big one.

Under the old regime, as interpreted by the Supreme Court in Dakshin Gujarat Vij Co. Ltd. v. Gayatri Shakti Paper and Board Ltd., each captive user in an association of persons had to consume roughly in proportion to its ownership — a Unitary Qualifying Ratio of 1.96% consumption for every 1% of ownership, within ±10%. Miss it, and the consequence fell on everyone. One minority user’s shortfall could de-captivate the entire plant, exposing all users to cross-subsidy surcharge for that year.

The new Rule 3(2)(d)(i) removes that. The conditions are now:

“…satisfied collectively by all the captive users, and the aggregate consumption by all such captive users from the power plant shall be considered for the purpose of verifying compliance.”

For a group captive structure with several consumers of different sizes and load patterns, this materially de-risks the whole arrangement. One user’s bad year no longer sinks the ship.

2. But there is a new individual cap — and it is a genuine tightening

Rule 3(2)(d)(ii), in force from 1 April 2026:

“captive consumption by an individual captive user shall be admissible only up to one hundred per cent of its proportionate consumption, calculated with reference to its share in the total captive ownership.”

And Rule 3(3), the consequence:

“…any consumption by an individual captive user in excess of one hundred per cent of its proportionate consumption shall be treated as supply of electricity by a generating company and cross-subsidy surcharge and additional surcharge shall be levied on such excess consumption.”

Before the amendment, an anchor consumer could take a large share of the plant’s output without penalty. Now, unless it holds 26% or more, the excess is stripped of captive treatment and attracts CSS and additional surcharge.

Most vendor content reports only the loosening. This is the half that costs money.

3. Holding 26% or more exempts you from that cap

Rule 3(2)(d)(iii): where a captive user holds not less than twenty-six per cent ownership, the proportionate consumption cap does not apply to it.

Note the wording - “not less than 26%” means 26% qualifies. At least one prominent international law firm’s alert says “more than 26 percent,” which would exclude a user holding exactly 26%. Against the gazette text, that is wrong.

This clause is the single strongest argument for consolidating equity in a group captive SPV. If your anchor consumer sits at 22%, moving it to 26% removes its consumption cap entirely.

4. Your corporate group is now one captive user

The definition of “captive user” was expanded:

“Where a captive user is a company, the captive user shall be deemed to include its subsidiary or subsidiaries, its holding company, and any other subsidiary or subsidiaries of such holding company, and shall be collectively treated as a single captive user.”

Fellow subsidiaries are the genuinely new addition. In practice this means equity can sit in one group entity while consumption happens in others — see Example 4 below, which is precisely that case.

5. Storage counts

The definition of captive user now includes a person who consumes electricity “either directly or through an Energy Storage System used for storing energy generated from such Captive Generating Plant,” and provides that captive use “shall be construed accordingly.”

That last phrase matters: it carries storage through into the 51% computation, giving solar-plus-BESS and wind-plus-BESS captive structures a clear foundation for the first time.

One honest caveat: the rules do not address banking. Whether energy banked with the grid and drawn back later retains captive character is unresolved, and several law firms have flagged it. If your structure depends on banking, get advice.

6. Verification moved

From 1 April 2026, captive status is verified by the state nodal agency where the plant and users are in the same state, and by the National Load Despatch Centre where they span more than one. Appeals go to a Grievance Redressal Committee constituted by the appropriate government — not to the State Electricity Regulatory Commission, which is a significant jurisdictional shift.

Usefully, pending verification, CSS and additional surcharge are not levied, subject to a declaration by the captive users. If verification later fails, the surcharges become payable with carrying cost at the base rate of Late Payment Surcharge.

Verification for consumption up to FY 2025-26 stays with the Central Electricity Authority; from FY 2026-27 it moves to NLDC or the state nodal agency.

Schedule III: the four worked examples

The formula used throughout is:

Captive Consumption Eligibility Limit= (Y × x) ÷ X

where x = that user’s percentage ownership, X = total percentage ownership of all captive users, and Y = total actual consumption by all captive users, expressed as a percentage of total ex-bus generation. Every figure is a percentage of total ex-bus generation.

A note on a conflict you may encounter. Some law-firm alerts describe the individual cap as (51% ÷ 26%) × ownership%. That is not the formula in the notified Schedule III, which is driven by actual aggregate consumption, not by the 51% floor. Under Example 1 the two methods give different answers —29.4% versus 35%. Rely on Schedule III.

Example 1 — Proportionate consumption within limit

What the Schedule says: A’s actual consumption of 33% qualifies as captive consumption. For B, only consumption up to 23.33% qualifies. C’s 9% qualifies.

In plain terms: the plant passes the 51% test comfortably at 70%. A and C are inside their limits. B has consumed 28% against a limit of 23.33%, so 4.67 percentage points of B’s consumption lose captive treatment and attract CSS and additional surcharge.

An oddity worth knowing. The Schedule titles this example “Proportionate Consumption Within Limit,” yet B exceeds its limit. That is an internal inconsistency in the notified text, not a typo in this article. We flag it because if you are relying on the heading rather than the note, you will read it backwards.

Example 2 — Collective versus individual limit

What the Schedule says: A’s 20% qualifies. For B, only up to 17% qualifies — however, B’s entire 28% counts for plant verification. C’s 3% qualifies.

This is the most important of the four for a C&I buyer. It shows the two tests are separate. The plant’s 51% threshold is measured on total consumption including B’s excess, so the plant remains captive. But B individually is capped at 17%, and the 11 percentage points above that are treated as supply by a generating company.

You can be inside a compliant plant and still be paying cross-subsidy surcharge.

Example 3 — Individual ownership of 26% or more

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What the Schedule says: although A’s proportionate limit is 58.2%, A’s actualconsumption of 80% qualifies in full because its ownership is 26% or more.B and C are within their limits.

This is the anchor-investor carve-out,quantified. A is consuming 21.8 percentage points beyond its proportionateshare and pays no surcharge on any of it, purely because it crossed 26%.

If you are structuring a group captive SPVaround a dominant consumer, this example is the business case for taking thatconsumer to 26%.

Example 4 — Group entities treated as a single person

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Here A holds the equity, A1 is A’s holding company, A2 is A’s subsidiary and A3 is a subsidiary of A1.

What the Schedule says: only the group’s collective consumption of 48.12% qualifies; the excess does not. And critically: “Allocation of the eligible collective captive consumption among group entities shall be determined by the group, subject to the collective eligibility limit.”

Look at what this permits. All 22% of the equity sits in A. All 60% of the consumption sits in A1, A2 and A3 — A itself consumes nothing. And the structure works. For an Indian corporate group with a holding company, manufacturing subsidiaries and a treasury entity, that flexibility is the most useful single fact in the entire amendment.

What this means for your plant

If you hold 26% or more: you are in the strongest position the rules have ever offered. No individual consumption cap, and your group’s other entities can consume against your equity.

If you hold less than 26% and consume heavily: model your exposure now. Example 2 is your case. The excess above your proportionate limit will attract cross-subsidy surcharge and additional surcharge from FY 2026-27, and there is no grandfathering — the rules preserve no legacy structures and carve out no existing PPAs.

If you are a corporate group: revisit which entity holds the equity and which entities consume. Example 4 shows the structure is far more flexible than most people assume.

If you are considering solar-plus-storage: the ESS provision is new and favourable, but banking remains unresolved.

The practical advice converging across the law firms writing on this is straightforward: audit your SPV cap table now, and consolidate equity above 26% where you can.

One live legal complication

On 12 June 2026 the Karnataka High Court quashed clause 6.7 of KERC’s captive verification procedure, which had computed a “dynamic Unitary Qualifying Ratio” as Y ÷ X. The Court held a State Commission could not read a limit into Rule 3 that Rule 3 did not contain.

The irony is not lost on us: the formula the Centre has now written into Schedule III is from the same mathematical family. The distinction that saves it is authority — KERC was a state regulator inventing a test retrospectively; the Centre has enacted it into Rule 3 itself, prospectively, after two rounds of consultation. The Karnataka judgment concerns FY 2024-25 under the old Rule 3 and does not invalidate the 2026 amendment.

But legacy-period disputes remain live, and if you have an open captive verification for an earlier year, that judgment is relevant to you.

Where Solnce fits

We build and structure group captive and open access solar for industrial consumers, and we compare EPC partners on the same specification so you are choosing on engineering rather than on a sales pitch.

For a plant in Surat, Ahmedabad, Vadodara or the Gujarat industrial belt, send us your last twelve months of electricity bills and your current captive structure if you have one. We will model your position under the new rules and tell you plainly whether group captive, open access, or a rooftop system on your own roof produces the better number.

This article summarises regulation for general information. It is not legal or tax advice. Captive structures have significant legal and financial consequences — take advice from a power lawyer and your chartered accountant before restructuring.

Frequently asked questions

1. What are the Electricity (Amendment) Rules, 2026?

Notified by the Ministry of Power as G.S.R. 186(E) on 13 March 2026, they substituted Rule 3 of the Electricity Rules, 2005 in its entirety, redefining how captive generating plants and group captive structures are tested for compliance.

2. Did the 26% and 51% thresholds change?

No. A captive generating plant still requires not less than 26% ownership by captive users and not less than 51% of aggregate generation consumed captively during the financial year. What changed is how those conditions are tested.

3. What is the biggest change for group captive?

The 51% consumption test is now satisfied collectively by all captive users, using aggregate consumption, rather than requiring each user to consume in proportion to its ownership. One user’s shortfall no longer de-captivates the plant for everyone.

4. What is the new individual consumption cap?

From 1 April 2026, an individual captive user’s captive consumption is admissible only up to 100% of its proportionate consumption, calculated by reference to its share of total captive ownership. Consumption above that is treated as supply by a generating company and attracts cross-subsidy surcharge and additional surcharge.

5. Who is exempt from the individual cap?

Any captive user holding not less than 26% ownership. Note “not less than” — a user at exactly 26% qualifies for the exemption.

6. How is the individual eligibility limit calculated?

Eligibility Limit = (Y × x) ÷ X, where x is that user’s percentage ownership, X is the total percentage ownership of all captive users, and Y is the total actual consumption by all captive users as a percentage of total ex-bus generation. Schedule III to the Rules sets out four worked examples, all reproduced above.

7. What is Schedule III?

A schedule inserted by the 2026 amendment containing four numerical illustrations of how captive compliance is computed. It forms part of the notified rules and is referenced in the operative text of Rule 3(2)(d).

8. Can my subsidiary’s consumption count against my equity?

Yes. Where a captive user is a company, it is deemed to include its subsidiaries, its holding company and fellow subsidiaries of that holding company, collectively treated as a single captive user. Schedule III’s Example 4 shows equity held entirely by one entity and consumption spread across three others.

9. Who decides how group consumption is allocated between group companies?

The group does. Schedule III states expressly that allocation of the eligible collective captive consumption among group entities shall be determined by the group, subject to the collective eligibility limit.

10. Does energy storage count as captive consumption?

The definition of captive user now includes consumption “either directly or through an Energy Storage System” storing energy from that captive plant, and provides captive use shall be construed accordingly — which carries storage into the 51% computation. Banking of energy through the grid, however, is not addressed and remains unresolved.

11. Who verifies captive status now?

From 1 April 2026, the state nodal agency where the plant and users are in the same state, and the National Load Despatch Centre where they span more than one. Appeals lie to a Grievance Redressal Committee constituted by the appropriate government, not to the State Commission. Verification for consumption up to FY 2025-26 remains with the Central Electricity Authority.

12. Do I pay cross-subsidy surcharge while verification is pending?

No. The rules provide that pending verification, cross-subsidy surcharge and additional surcharge are not levied, subject to a declaration furnished by the captive users. If the plant later fails verification, the surcharges become payable with carrying cost at the base rate of Late Payment Surcharge.

13. Are existing group captive structures grandfathered?

No. The rules contain no grandfathering clause and preserve no legacy structures or existing PPAs. The only transitional relief is that the individual cap and the verification framework took effect from 1 April 2026 rather than 13 March 2026.

14. What happens if the plant misses the 51% threshold?

Rule 3(3) provides that where the minimum captive consumption requirement is not met, the entire electricity generated by the plant is treated as supply by a generating company, and cross-subsidy surcharge and additional surcharge are levied on it.

15. Is an SPV treated differently from an association of persons?

No. The rules now define a Special Purpose Vehicle as an entity established solely to own, operate and maintain a generating station and undertaking no other business — and expressly provide that an SPV shall be treated as an association of persons.

16. Can I designate just one unit of a larger plant as captive?

Yes, and the rules include an illustration. In a station with two 50 MW units, one unit may be identified as the captive generating plant; captive users must then hold not less than 13% of the company’s equity — being 26% proportionate to that 50 MW unit — and consume not less than 51% of that unit’s generation.

17. What happens if ownership changes during the year?

The rules provide that mid-year ownership changes are assessed on weighted average shareholding. They do not, however, prescribe how that weighted average is to be computed — a gap several law firms have flagged as a litigation risk.

18. Should I restructure my group captive now?

If you hold less than 26% and consume more than your proportionate share, model your exposure before FY 2026-27 verification. The consistent advice from firms writing on this is to audit the SPV cap table and consolidate equity above 26% where commercially possible. Take proper legal and tax advice — this is a structural decision, not a procurement one.

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