Captive Power Generation in India and its Inherent Challenges

Abstract: The power sector in India is extremely dynamic in nature and constantly restructures itself to overcome various challenges that it faces. In the early 1990s, India witnessed a phenomenal growth in the load demand, however, the then existing regulatory framework and institutional structure of Indian power industry was not capable enough to meet such power demand. Therefore, the Government of India recognized that there is an urgent need to open an alternative route where the industries themselves will be interested in meeting their own power demand by pooling resources together. Captive power plants, because of the inherent benefits offered by them, were considered as one such alternative route.

This paper analyzes the captive power generation in India, its historical origin, its present status and its inherent challenges which impact the stakeholders involved in country’s power sector. The paper details out the key provisions of the Electricity Act, 2003 and Electricity Rules, 2005. Also discussed are the landmark judicial cases and precedents that have shaped the captive power sector in India.

Introduction

India is a major player in the global energy economy. Energy consumption has more than doubled since 2000, propelled upwards by a constantly growing population, and a period of rapid economic growth. Near-universal household access to electricity was achieved in 2019, meaning that over 900 million citizens have gained an electrical connection in less than two decades. Yet, the energy demand is likely to still rise upwards in the years to come, as per capital energy consumption in India is still well under half the global average and there are widespread differences in energy use and the quality of service across states and between rural and urban areas. Industrialization is also expected to add to the electricity demand in the country. From the consumer’s perspective, there is still some distance to be travelled to ensure affordability and reliability of energy supply.

As per the India Energy Outlook 2021[1], Covid-19 pandemic had disrupted India’s energy use with an estimated fall of about 5% in the country’s energy demand in 2020 due to lockdowns and related restrictions, with coal and oil use suffering the biggest falls. The pandemic has also hit investment in the energy sector, which fell by an estimated 15% in 2020, exacerbating financial strains across the board, particularly amongst India’s electricity distribution companies. Despite the negative impact that the outbreak of  Covid-19 had on the Indian economy, India’s electricity demand is still projected to grow by almost 5% per year by 2040, which is nearly double the rate of energy demand as a whole. India expected to add to its installed base over the next two decades the capacity equivalent to the installed capacity of European Union as a whole. With falling costs, renewable energy, particularly solar PV and wind, is becoming competitive with existing coal-fired plants. This means that the renewable is likely to account for the lion’s share in capacity addition over the next two decades, three-fourths by some estimates[2]. 

Government of India has announced a goal of achieving 500GW of renewable installed capacity by 2030. This will require augmentation of not only generation capacity but also transmission and distribution infrastructure. This poses significant technical and financial challenges as well. 

Captive Power Generation in India

Captive power projects were conceptualized at the time of extreme generation shortfall which affected reliability of power for commercial and industrial (“C&I”) consumers. The scarcity since then has not been of the same order, however, India’s commitments to move towards cleaner power has meant that there are newer incentives to promote the industry to invest in cleaner energy solutions. Clean-energy focused funds and investors have also been pushing their investee companies to procure cleaner power from renewable sources. While new large scale grid connected renewable solar projects have been adding more renewable capacity in the generation mix, at the level of individual C&I customers too there is a realisation to invest in captive renewable capacity. Reducing cost of renewable generation, particularly solar power, is also providing a tempting economic rationale for investing in captive power projects.

The word captive means “prisoner” or “bound for a particular work”. Captive Power Plants (CPPs) are defined as the power plant set up or proposed to be set up by an industry, institution, a person, or a group of persons to meet their own power requirements. Captive power is the power generated by an agency to meet its needs in complementary or supplementary mode to the electricity obtained from the grid. 

Over the years, captive power plants have evolved from plants owned by single promoters to group captive projects .The Installed Capacity of Captive Power plants (1 MW and above) has grown substantially from 588 MW in 1950 to 78,508 MW as of March 2021. The gross energy generated by CPPs was 2,24,833 MU in 2020-21. The details are indicated in Table[3] below:

S. No.	Type	Installed Capacity (MW)	Gross Generation (MU) in 2020-21
1.	Hydro	131	339
2.	Steam	47,760	1,93,143
3.	Diesel	17,563	2,504
4.	Gas	7,361	21,684
5.	RES (Wind. Solar etc.)	5,694	7,158
	Total	78,508	2,24,833

As is evident from the table above, substantial number of captive power generators use hydrocarbon sources including naphtha, coal, diesel and gas as fuel, but that is a historical legacy. The share or renewable energy, particular solar power, is progressively increasing in the overall captive generation capacity.

Law regulating the Captive Power Generation in India

Captive power projects are regulated under the Electricity Act, 2003 (“Act”) and Electricity Rules, 2005 (“Rules”).

Section 2(8) of Act defines captive generation plant as follows:

“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 cooperative society or association.”

The Rules elaborate further on the requirements to be fulfilled by a project for it to qualify as a captive power project.

As per Rule 3[4] (1)(a) of the Rules, a power project is considered ‘captive’ if the consuming entity or entities: –

1. own(s) at least 26% of the equity capital with voting rights of the generator; and
2. consume at least 51% of the power generated from the captive power project.

As per the First Proviso to Rule 3(1)(a), if the captive power plant is established by a cooperative society, then all the constituent members of such cooperative society must collectively:

1. own not less than 26 % (twenty six percent) of the ownership of such captive power plant in aggregate; and
2. consume not less than 51 % of the total power generated by such captive power plant.

Further, the Second Proviso to Rule 3(1)(a) of the Rules provides that if the captive power plant is established by an association of persons, then the constituent persons must hold not less than 26% (twenty six percent) of the ownership of the captive power plant in aggregate but in order to fulfil the second condition of minimum threshold of consumption of generated electricity, Principle of Proportionality comes into play.

Principle of Proportionality

Unlike a cooperative society and a special purpose vehicle,  the captive user(s) in an association of persons are required to consume not less than 51% (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.

By way of an example, if an association of persons consists of 4 (four) persons and collectively, such persons own 40 % (forty percent) ownership in the captive power plant with each person’s contribution being 10 per cent thereby the proportion of contribution is arrived at 1:1:1:1. So, with this ownership structure, the first condition is fulfilled. In order to fulfil the second condition, i.e., to consume at least 51 % of the total electricity generated (say, total electricity generated is 100 MW), each person shall be required to consume at least 25% of 51 MW with a permissible deviation of up to 10 % upwards or downwards to fulfil the second condition for classifying the plant as captive power plant. 

Further, as per Rule 3(1)(b) of the Rules, if an electricity generation plant is owned by a company formed as a special purpose vehicle, then for such generation plant, only the units identified for captive use shall have to fulfil the conditions as mentioned in Rule 3(1)(a)(i) and (ii).

This provision has been well explained by an illustration attached in Rule 3.  For instance, in a generating station if there are two units of 50 MW each namely Units A and B wherein one unit of 50 MW namely Unit A is identified as the Captive Generating Plant,  the captive users shall hold not less than thirteen percent of the equity shares in the company (being the twenty six percent proportionate to Unit A of 50 MW) and not less than fifty one percent of the electricity generated in Unit A determined on an annual basis is to be consumed by the captive users.

By way of another example, if in a generating company, there are 4 units, i.e., Unit A of 100 MW, Unit B of 80 MW, Unit C of 50 MW and Unit D of 30 MW. Unit A is identified as the Captive Generating Plant. Now, the captive users shall hold not less than 10 % (ten percent) equity shares with voting rights of the generating company. This can be explained with the following formula:

26% X {100 (Total Power Generation Capacity of Captive Power Unit) / 260 (Total Power Generation Capacity of Generating Station)}

In addition, the captive users of Unit A will be required to consume not less than fifty one percent of the electricity generated from Unit A determined on an annual basis.

In the event the captive consumer(s) is/are not able to meet the minimum consumption requirements as discussed above, in any year, the entire electricity generated shall be treated as non-captive generation by such power plant.

Incentives to captive power projects

For the purpose of uninterrupted supply and transmission of electricity from the captive power generation plant to the place of consumption of electricity, Section 9(2)[5] of the Act provides that every captive generating plant operator shall have the right to open access to the grid.

Section 2(47) of the Act defines open access as, “non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission.”

Section 38 and 42 of the Act further provide that cross-subsidy and surcharge shall not be levied on captive consumers of a captive power project.

Inherent Challenges to Captive Power Generation

Some of key challenges to captive power projects are as follows:

1. High open Access charges

Open access charges constitute a significant portion of the tariff for the consumers. While cross-subsidy surcharges and additional surcharges are waived for captive consumers, high wheeling and banking charges, and newer taxes such as Harit Urja Tax introduced in Madhya Pradesh on renewable energy stack up, increasing the landed tariff for the consumers.

2. Delay/ Pendency in getting open access approval

Open access approvals for captive power projects often take a long time to come, and is often contingent on a number of procedural hurdles. For example, in Uttar Pradesh, long-term open access (LTOA) approval is subject to commercial operation date (COD), availability-based tariff (ABT) meter installation and security deposit with discoms. Where a developer is seeking a partial COD for completing a part of the project, the approval process may require approaching the state electricity regulator, which process may easily take 4-5 months.

The Ministry of Power has notified the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“Green Energy Open Access Rules”) which mandates that Green Energy Open Access applications need to be disposed-off in 15 days’ time. This has certainly helped in faster processing of open access particularly green energy projects. As per the data available on Grid India’s website[6], out of 8594 applications for green open access, 8569 applications have been approved as on the date of printing of this white paper.

3. Constraints in banking

Historically, banking of power has been a challenge in many states. Many states, in the past have refused to allow banking of surplus power. In many other states, despite banking being allowed, the discoms are refusing to execute the wheeling and banking agreements to operationalize the banking. For example, in Uttar Pradesh, while the UPERC (Captive and Renewable Energy Generating Plants) Regulations, 2019 allows banking up to 100 per cent of the energy generated in the state, however the discoms have refused to execute the wheeling and banking agreements. Recently, Amplus Solar has filed a petition challenging the restriction of banking facility up to 25 per cent of the energy generated to 10 consumers of a 50 MW group captive solar project, the matter is pending disposal at the UP Electricity Regulatory Commission. 

In Rajasthan, banking of energy is subject to a maximum ceiling of 25 per cent of the energy injected during a 15-minute time block, allowed only for captive consumers. In past, Madhya Pradesh restricted banking for discoms’ registered captive renewable energy projects.

However, the Green Energy Open Access Rules have come as relief to green energy projects in so far as banking of the power is concerned. The said rules mandate that at least 30%  of the total generation shall be allowed to be banked for a period of 30 days. If implemented by states in spirit, this can help bring some certainty on banking of surplus generation for the generators. The latest position of banking facility as provided by various states is given below:    

S. No.	State	Banking allowed	Settlement period	Charges
1.	Bihar[7]	100%	Monthly	2%
2.	Haryana[8]	Up to 30% of the total monthly consumption of electricity from the distribution licensee	Monthly[9]	8%
3.	Chhattisgarh[10]	100%	Annual (April-March)	2%
4.	Rajasthan[11]	25%	Annual (April-March)	10%
5.	Uttar Pradesh[12]	100%	Within two subsequent quarter	6%
6.	Madhya Pradesh[13]	At least 30% of the total monthly consumption of electricity from the distribution licensee	3 months from the date of banking	8%
7.	Maharashtra[14]	100%	Monthly[15]	2%
8.	Karnataka[16]	At least 30% of the total monthly consumption of electricity[17]	Monthly	Rates to be notified by the KERC from time to time

4. Misinterpretation of captive rules and levy of cross-subsidy surcharge

a). The Supreme Court vide its order dated December 10, 2021 in the matter of  Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Others[18], clearly disallowed levy of any surcharge on captive consumers to follow the true spirit of the Electricity Rules, 2005 in respect of captive power generation. This order came as a key clarification for the entire open access market and has eliminated multiple interpretations of captive rules. Before this order, many electricity regulators allowed imposition of additional surcharge on captive power projects, some of which are as follows:

i. In the matter of Ultratech Cement Limited versus M.P. Poorv Kshetra Vidyut Vitaran Co. Limited 2021[19], Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited (MPPKVVCL) imposed CSS and additional surcharge (AS) on UltraTech Cement stating that upfront no power plant can be declared as a captive generating unit. Hence, CSS would be payable by UltraTech’s Maihar unit during the financial year, which would be refunded/adjusted upon its qualification as a captive user on an annual basis. This interpretation can have significant impact of the cash flows of the generators or consumers, at least in the initial stages of the project. Moreover, the MPERC also held that additional surcharges are not prohibited on captive power project, meaning thereby that such additional surcharges are leviable. MPERC ignored an earlier judgment of Appellate Tribunal for Electricity, in M/s JSW Steel Limited v MERC on the ground that the said judgment has been appealed in the Hon’ble Supreme Court. Since then, Hon’ble Supreme Court has settled this issue in the case of Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Others.

ii. In the matter of Porwal Auto Components Limited versus M.P. Poorv Kshetra Vidyut Vitaran Co. Limited[20], MPPKVVCL levied AS on Porwal Auto Components. The case is pending adjudication before the Appellate Tribunal for Electricity.

b). In the matter of Tesco Energy Two Private Limited versus Rajasthan Vidyut Prasaran Nigam Limited and another[21], one of the shareholders of the special purpose vehicle, namely, M/s Secure Meters, wanted to consume 100 per cent of the power generated having an ownership of 26 per cent of the SPV. In view of the said arrangement, Rajasthan Electricity Regulatory Commission concluded that the petitioner’s generating plant does not fall under the definition of “captive generating plant” as per Section 2(8) of the Act and Rule 3 of the Rules. This judgment is clearly in the face of the Electricity Rules which permit a captive consumer holding 26% equity shares with voting rights to consume 100% of generation.  The interpretation of the law in this matter has been challenged in the High Court of Rajasthan in the case of LNJ Power Ventures Limited versus Rajasthan Electricity Regulatory Commission and others and is pending final disposal.

Landmark judicial precedents that have shaped the captive power generation sector in India

1). A Captive generation plant owned by a special purpose vehicle has to be treated as an association of person and liable to consume 51% of its generation in proportion to the ownership of the plant.

Suit: Kadodara Power Private Limited & Others vs Gujarat Electricity Regulatory Commission and others[22]

Facts: In this case, the appellants involved were mostly SPVs whose shareholder entities did not consume the captive power so generated in proportion to their shareholding in the SPVs. Based on the findings, Gujarat Electricity Regulatory Commission (GERC) declared that the consumption of such entities/companies shall be considered as a sale of electricity by a generating company to a consumer through open access.

The appellant entities challenged the impugned order of GERC relating to the captive status of some power generation units and certain instructions given to the Chief Electrical Inspector.

Issues in consideration: Whether a company formed as a special purpose vehicle an association of person?

Decision of Tribunal:  The Hon’ble tribunal held thata CGP owned by a special purpose vehicle has to be treated as an association of persons and liable to consume 51% of his generation in proportion to the ownership of the plant. It said that since every legal entity is A person, therefore, the special purpose vehicle which is a legal entity shall be a person in itself. Therefore, it will be wrong to say that since the special purpose vehicle is a ‘person’ in itself it cannot be covered by a definition of ‘association of persons’ and has to be covered by the main provision which requires the owner to consume 51% or more of the generation of the plant. It further said that a CGP owner being a special purpose vehicle can be a ‘person’ as well as an ‘association of persons’. Accordingly, the rule of proportionality is applicable on special purpose vehicles also. In case the special purpose vehicle was not required to maintain the rule of proportionality of consumption, the Central Government could have specifically mentioned the same just as it has done for a cooperative society.

2). Captive power consumers are not liable to pay additional surcharge under the Electricity Act, 2003.

Suit: Maharashtra State Electricity Distribution Co. Limited versus M/s. JSW Steel Limited & Others[23]

Facts: In this matter, Maharashtra State Electricity Distribution Co. Limited(“MSEDCL”) challenged the decision of the Appellate Tribunal for Electricity (“APTEL”) before the Hon’ble Supreme Court. APTEL had through its order dated March 27, 2019 (“Impugned Order”), set aside the order of the Maharashtra Electricity Regulatory Commission (MERC) dated September 12, 2018 (“MERC Order”).

The MERC Order stipulated that as per Section 42(4) of the Act, captive power consumers, who have availed open access and receive supply from sources other than the distribution licensee (“DISCOM”) in whose area they are located, are liable to pay additional surcharge. On appeal against the MERC Order, APTEL set aside the MERC Order and held that there is no requirement for captive consumers to pay any additional surcharge to the DISCOM i.e., MSEDCL, under Section 42(4) of the Act. Aggrieved by the Impugned Order, MSEDCL had filed an appeal before the Hon’ble Supreme Court.

Issue in consideration: Whether the captive consumers/captive users are liable to pay the additional surcharge leviable under Section 42(4) of the Electricity Act, 2003?

Decision of the Court: While analyzing the issue of payment of additional surcharge by a captive consumer, the Hon’ble Supreme Court held as follows:

I No express permission is required by Captive Consumer to set up Captive Plant

The Hon’ble Supreme Court referred to the provisions pertaining to a ‘Captive Consumer’ under Section 9 of the Act, and ‘Duties of Distribution Licensees and Open Access’ under Section 42(4) of the Act. Based on perusal of such provisions, the apex Court evaluated the issue of requirement of any permission from MERC for setting up a generation plant for captive use. The apex Court said that the right of a captive consumer to set up a captive generation plant for captive use, is a statutory right provided by the Act and requires no separate permission from MERC. Further, the apex Court observed that only because supply of power through the grid is regulated in a similar manner for a generating company and a captive generation plant, or the fact that grant of open access is subject to the availability of the transmission facility as determined by the central transmission utility or the state transmission utility, it cannot be deemed that prior approval of MERC is required for captive generation.

II Captive Consumer is distinct from Ordinary Consumer

Based on the analysis of Section 42(4) of the Act, the apex Court determined that this section applies only in cases where the State Commission has granted prior permission to a consumer to procure power from a source other than the DISCOM operating in the consumer’s area. In such cases, the consumer is required to pay an additional surcharge as approved by the State Commission.

However, the apex Court clarified that captive consumers, who generate their own power, cannot be classified under this category. Captive generation does not require prior approval from the State Commission. The Court recognized that captive consumers bear significant expenses in setting up and maintaining their own power generation plants and transmission lines.

In light of this, the apex Court held that it would be inequitable to subject captive consumers to the additional surcharge under Section 42(4) of the Act. Consequently, the Court directed MSEDCL (the distribution company involved in the case) to refund the additional surcharge collected from captive consumers during the operation of the MERC Order.

However, considering the potential financial burden on distribution companies like MSEDCL, the Court acknowledged that reimbursing the additional surcharge in a single payment would impose a significant liability. As a solution, the Court allowed the adjustment of the refunded amount against future bills raised for recovering wheeling charges. This means that the additional surcharge collected from captive consumers would be deducted from their future bills as a form of reimbursement.

3) Special Purpose Vehicle and Association of Persons are two distinct entities and cannot be equated at par for computation of annual power consumption for determining the captive status. The verification for determining ownership & consumption for CGP /captive users under Rule 3, being an independent exercise, has to be done on annual basis, at the end of financial year.

Suit: Tamil Nadu Power Producers Association versus Tamil Nadu Electricity Regulatory Commission and others[24]

Facts: The matter came before the Hon’ble Appellate Tribunal of Electricity being Appeal No. 131 of 2020 filed by Tamil Nadu Power Producers Association (“TNPPA”) challenging the impugned order dated 28.01.2020 (“Impugned Order”) passed by the Tamil Nadu Electricity Regulatory Commission (“TNERC”) in R.A. No. 7 of 2019 wherein the said TNERC had formulated a procedure for verification of status of Captive User(s) and Captive Generating Plant(s) (“CGP”) located in the State of Tamil Nadu, said to be in terms of directions of Hon’ble High Court of Madras in W.A. (MD) No. 930 of 2017.

Tamil Nadu Generation and Distribution Corporation Limited (“Respondent No. 2”) issued certain circulars requiring the captive generators and captive users to furnish documents, data for the purpose of verification of captive generating plants in accordance with Rule 3 of the Rules. The aforesaid circulars were challenged by various captive users and captive generators before the Hon’ble High Court (Madurai Bench) by way of Writ Petitions which were disposed of vide an Order dated 25.05.2017. The aforesaid Order was thereafter challenged by Respondent No. 2 by filing Writ Appeal, wherein the Division Bench of the Hon’ble High Court vide an order dated 09.10.2018, issued certain directions including direction to Respondent No. 2 to issue either a general or special order detailing the procedure to be followed for verification of the CGP Status either by directing or giving liberty to the appellants to verify the Captive Status of the Generating Companies. On 27.02.2019, TNERC webhosted a draft procedure for verification of status of Captive User(s) and Captive Generating Plant(s) by the Respondent No. 2 followed by a revised draft procedure issued on 09.12.2019. On 28.01.2020, TNERC passed the Impugned Order passing various directions for verification of status of Captive User(s) and Captive Generating Plant(s) by Respondent No. 2 which was challenged before the Hon’ble Appellate Tribunal of Electricity.

Issues in consideration: A total of 7 issues were framed in this case. However, out of the seven such issues, three major issues are discussed below:-

1. Whether it is correct on the part of TNERC to treat SPV as an AOP for ascertaining the eligibility of captive status?
2. Whether TNERC has correctly followed the Criteria for verification of consumption provided under Rule 3?
3. Whether Retrospective applicability of proposed procedure/ guidelines is justified under the law?

Decision of Tribunal:

I) Special Purpose Vehicle (SPV) and Association of Persons (AoP) are two distinct entities and principle of proportionality does not apply on SPV but only on AoP.

The Hon’ble Tribunal held that APTEL, pursuant to analyzing Rule 3 of the Rules as well as judgments passed by the Supreme Court regarding interpretation of proviso as exception to the general rule, held that SPVs cannot be equated with AOPs under Rule 3 of the Rules. The Hon’ble Tribunal was of the view that the second proviso to Rule 3(1)(a) is a stand-alone provision and as such does not relate to Rule 3(1)(b). Therefore, Hon’ble Tribunal held that the requirement of proportionate consumption is only applicable to AOPs and not SPVs.

Pertinently, Hon’ble Tribunal in differentiating between SPVs and AOPs held that the judgment dated 22.09.2009 previously passed by the tribunal in Appeal No. 171 of 2008: Kadodara Power Pvt. Ltd. vs. Gujarat Electricity Regulatory Commission & Ors. to the extent it equates an SPV and an AOP is ‘per incuriam’.

II) Criteria for verification of consumption provided under Rule 3

The Hon’ble Tribunal held thatin terms of previous judgments passed by the tribunal, it is already established that the requirement of 26% shareholding and 51% captive consumption are the minimum requirements to be fulfilled by a set of captive users, and once the same is done, the rest of the captive users not fulfilling the above conditions will have no impact to the overall captive structure. Therefore, there cannot be any liability to make payment of CSS by defaulting captive users if the rest of the captive users fulfil the minimum requirements of 26% shareholding and 51% of consumption.

III) Retrospective applicability of any legislation

It was held that the proposed amendment to the Electricity Rules, 2005 in terms of which verification of ownership and consumption ought to be done for each corresponding period of change and not at the end of the year, cannot be made applicable by TNERC at this stage. The Hon’ble Tribunal further noted that there cannot be any retrospective application of procedure formulated under the Impugned Order. However, it was clarified that for the past years TANGEDCO can verify data for the purpose of verification of CGP status on the basis of data already furnished by CGP/ captive user(s) while availing open access.

[Note: The judgment rendered by the Hon’ble Tribunal in Tamil Nadu Power Producers Association (supra) is under challenge before the Hon’ble Supreme Court, in Diary Nos. 22360/2021 & 21493/2021, but till date, no effective order has been passed therein, and thus, the judgment rendered in Tamil Nadu Power Producers Association (supra) is still governing the field.]

4) Captive generating plant owned by a special purpose vehicle is an association of persons and is subject to the rule of proportionality of consumption to the percentage share of ownership as an association of persons.

Suit: Tesco Energy Two Private Limited versus Rajasthan Vidyut Prasaran Nigam Limited and another[25]

Facts: Petitioner M/s Tesco Energy Two Private Limited is incorporated as a special purpose private limited company to generate solar energy and had set-up its captive solar power plant in Jodhpur, Rajasthan. Petitioner had entered into a Power Purchase Agreement (PPA) dated 07.11.2017 with M/s Secure Meters Ltd., Udaipur as 100% captive power user. As per Shareholders’ Agreement dated 09.08.2018 executed between M/s Secure Meters Limited (SML), Tesco Energy Private Limited (TEPL) and Youngistan Renewable Energy Solutions Private Limited (YRESPL), the shareholding of TEPL, YRESPL and SML is in the ratio of 37: 37: 26 i.e., M/s SML ownership being 26% in Petitioner company but wanted to consume 100% of power generated.

Decision of the Commission: Rajasthan Electricity Regulatory Commission (RERC) relied on the judgment of Kadodara Power Private Limited & Ors. Vs Gujarat Electricity Regulatory Commission & Ors. and held that the captive generating plant owned by a special purpose vehicle is an association of persons and is subject to the rule of proportionality of consumption to the percentage share of ownership as an “association of persons”. RERC also observed that in the present case, shareholders being TEPL, YRESPL and SML in the Petitioner company have equity shares in the ratio of 37:37:26 respectively and have to consume electricity in proportion to their shares of the ownership of the plant within a variation not exceeding (+) 10%. But admittedly, SML being one of the shareholders, proposed to consume 100% of power generated through solar plant. Thus, Petitioner’s plant is not fulfilling the rule of proportionality of consumption to the percentage share of ownership as an association of persons. Hence, Petitioner’s generating plant does not fall under the definition of “captive generating plant” as per Section 2(8) of the Act and Rule 3 of the Rules.

This judgment fails to take into account that of all the shareholders in a SPV, only one of them may be a captive consumer, in which case only such captive consumer is allowed to consume 100% of the generation. The rule of proportionality in the Rules has been contemplated for the captive consumers and not all shareholders of the SPV. The judgment has been challenged in the High Court of Rajasthan in the case of LNJ Power Ventures Limited versus Rajasthan Electricity Regulatory Commission, and is pending final disposal.

5) Suit: LNJ Power Ventures Limited versus Rajasthan Electricity Regulatory Commission and others[26]

Facts: The petitioner on 27.05.2019 filed a petition before Hon’ble High Court of Rajasthan as a pre-emptive measure against the operation of the order dated 08.05.2019 (“Impugned Order”) in Petition No. RERC – 1327/2018 (M/s Tesco Energy Two Private Limited vs. Rajasthan Vidyut Prasaran Nigam Limited & Another) passed by Respondent No. 1, i.e., Rajasthan Electricity Regulatory Commission (“RERC”). The petitioner further argued that RERC had placed reliance on Kadodara Judgment (supra) and came out with a wrong and incorrect interpretation of ‘Captive Generating Plant’ (“CGP”), whereunder a sole captive user holding 26% of the equity shareholding in the Special Purpose Vehicle (“SPV”) (which owns and operates the CGP) could not procure 100% power from such power plant under the captive agreement. The petitioner claimed Impugned Order adversely affected its interest. Consequently, an interim order dated 28.05.2019 (“Interim Order”) was passed by the Hon’ble Court thereby restricting the respondents from taking any coercive action against the petitioner, regarding the dispute in question. Despite such directions, respondent No.4- Ajmer Vidyut Vitran Nigam Ltd. (“AVVNL”) raised invoices to the tune of Rs.55,47,354/- on the petitioner, for the billing period December 2021.

The petitioner filed a second stay application bearing number No.17639/2021 and submitted that such wrongful interpretation by RERC in Kadodara judgment has been held as ‘per incuriam’ vide a subsequent judgment rendered by the Hon’ble Appellate Tribunal of Electricity itself in Tamil Nadu Power Producers Association vs. Tamil Nadu Electricity Regulatory Commission and Ors., vide orderdated 07.06.2021and accordingly,  the impugned invoice has been rendered infructuous, in view of the settled legal maxim of ‘sublato fundamento cadit opus” (once the foundation is removed, the superstructure falls).

Decision of Hon’ble High Court: The Hon’ble High Court vide order dated 06.01.2022 rejected the preliminary objections of the respondents seeking disposal of the case on the ground of lack of jurisdiction and held that the action of the respondent no. 4, AVVNL, is not only illegal and in violation of the Interim Order of this Court, but also unreasonable and arbitrary.

Promising Shift by the Government of India

With the aim of accelerating renewable energy programs and ensuring access to affordable, reliable, sustainable, and green energy for all, the central government has notified the Green Energy Open Access Rules. These rules include provisions that benefit common consumers and make it easier for them to access renewable energy.

Some key features and benefits of the ‘Green Energy Open Access’ are as follows:

1. Promotion of green energy: The rules encourage the generation, purchase, and consumption of green energy, including energy from Waste-to-Energy plants.
2. Reduced Open Access Transaction limit: The limit for Open Access Transactions has been lowered from 1 MW to 100 kW specifically for green energy. This change allows small consumers to participate in open access and purchase renewable power.
3. Obligation of Discoms: Consumers have the right to demand a supply of green power from Distribution Companies (Discoms), who are obligated to procure and supply green power to eligible consumers.
4. Streamlined approval process: The rules aim to streamline the approval process for granting open access. A national portal has been mandated to facilitate uniformity, transparency, and time-bound processing for application and approval. If approval for Green Open Access is not granted within 15 days, it will be deemed to have been granted.
5. Voluntary purchase of green power: Commercial and industrial consumers have the option to voluntarily purchase green power.
6. Clarity on charges: The rules provide certainty regarding the charges applicable to Green Energy Open Access Consumers, which include transmission charges, wheeling charges, cross-subsidy surcharge, banking charges and standby charges. The increase in cross-subsidy surcharge is capped, and additional surcharges are removed to incentivize consumers to opt for green power.
7. Uniform Renewable Purchase Obligation (RPO): All obligated entities in the area of a distribution licensee will have a uniform Renewable Purchase Obligation. The inclusion of Green Hydrogen/Green Ammonia is also considered for fulfilling this obligation.
8. Green Certificates: Consumers who consume green power will be provided with Green Certificates.
9. Tariff determination: As per the Electricity Act 2003, the tariff for green energy will be determined by the Appropriate Commission. It will include the average pooled power purchase cost of renewable energy, any cross-subsidy charges, if applicable, and service charges covering the distribution licensee’s prudent cost for providing green energy to consumers.

To facilitate the implementation of these rules, Grid Controller of  India Limited has been designated as the Central Nodal Agency to set up and operate a single window green energy open access system through the national portal, serving consumers across the country. This ensures efficient access to renewable energy for all.

Till the date of publication, the states of Haryana, Karnataka, West Bengal, Odisha and Madhya Pradesh have either notified their separate regulations or amended the existing open access regulations in line with the Green Energy Open Access Rules. Further, Bihar and Rajasthan have come up with their draft regulations which are yet to be finalized and notified thereon. On 13^th of May, 2023, Ministry of Power has issued an instruction to all the state regulatory commissions to comply with the Green Energy Open Access Rules and align their states’ Open Access Regulations with the notified Green Energy Open Access Rules. The SERCs must report their compliance by May 28, 2023.

Conclusion

For effective leveraging of the captive power projects in the overall energy mix of the country, a consistent policy direction is required. The Ministry of Power will have to take the lead in this direction. This can also be achieved by ensuring that the cross-subsidy and additional surcharges are eliminated and the discoms are allowed a remunerative tariff structure, with subsidy burden shifting from the discoms to the state governments. For a seamless policy direction, concerns of the discoms, particularly around frequent switching by the consumers between open access and grid based power needs to be addressed. Further, as far as judicial superintendence is concerned, the much awaited judgment by the Hon’ble Supreme Court in the connected matters of Tata Power Company Limited versus Tamil Nadu Power Producers Association and others, Diary No. 22360/2021,Maharashtra State Electricity Distribution Company Limited versus Tamil Nadu Power Producers Association and others, Diary No. 21493/2021 and Viraj Profile Limited versus Maharashtra State Electricity Distribution Company Limited, Diary No. 13563/2022 on the question of interpretation of Rule 3 of the Electricity Rules, 2005 read with the relevant provisions of the Electricity Act, 2003 shall provide a clear and unambiguous direction to all the concerned stakeholders involved in captive power generation and its regulation.

References:

[1] https://www.iea.org/reports/india-energy-outlook-2021/fuels-and-electricity-in-india

[2] https://www.iea.org/reports/india-energy-outlook-2021/fuels-and-electricity-in-india

[3]20^th Electric Power Survey of India, https://cea.nic.in/wp-content/uploads/ps___lf/2022/11/20th_EPS____Report___Final___16.11.2022.pdf  (at page 174).

[4] 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 –  

• not less than twenty six percent of the ownership is held by the captive user(s), and  
• 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 cooperative 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 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;

(b) in case of a generating station owned by a company formed as special purpose vehicle for such generating station, a unit or units of such generating station identified for captive use and not the entire generating station satisfy (s) the conditions contained in paragraphs (i) and (ii) of sub-clause (a) above including – 

Explanation :-

(1) The electricity required to be consumed by captive users shall be determined with reference to such generating unit or units in aggregate identified for captive use and not with reference to generating station as a whole; and  

(2) the equity shares to be held by the captive user(s) in the generating station shall not be less than twenty six per cent of the proportionate of the equity of the company related to the generating unit or units identified as the captive generating plant. 

Illustration: In a generating station with two units of 50 MW each namely  Units A and B, one unit of 50 MW namely Unit A may be identified as the Captive Generating Plant. The captive users shall hold not less than thirteen percent of the equity shares in the company (being the twenty six percent proportionate to Unit A of 50 MW) and not less than fifty one percent of the electricity generated in Unit A determined on an annual basis is to be consumed by the captive users. 

(2)  It shall be the obligation of the captive users to ensure that the consumption by the Captive Users at the percentages mentioned in sub-clauses (a) and (b) of sub-rule (1) above is maintained and in case the minimum percentage of captive use is not complied with in any year, the entire electricity generated shall be treated as if it is a supply of electricity by a generating company.  

Explanation.- (1) For the purpose of this rule.- 

a. “Annual Basis”  shall be determined based on a financial year;

b. “Captive User” shall mean the end user of the electricity generated in a Captive Generating Plant and the term “Captive Use” shall be construed accordingly; 

c. “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;

d. “Special Purpose Vehicle” shall mean a legal entity owning, operating and maintaining a generating station and with no other business or activity to be engaged in by the legal entity.

[5] Section 9(2) of the Electricity Act, 2003: Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the  right to open  access for the purposes of carrying  electricity  from his captive generating plant   to the destination of his use:  

Provided  that such open  access shall  be subject to availability of adequate transmission facility and such  availability of transmission  facility shall be determined by the  Central  Transmission  Utility or the State Transmission  Utility, as the  case  may be:  

Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the  Appropriate Commission.

[6] https://greenopenaccess.in/landing

[7] https://berc.co.in/rules-requlations/regulations/consolidated-regulations/1469-banking-of-power-from-fossil-fuel-and-renewable-energy-based-captive-generating-plant-regulations-2019

[8] https://herc.gov.in/WriteReadData/Pdf/R20230424.pdf

[9] “Haryana Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2014, (2nd Amendment) Regulations, 2019” retrieved from https://herc.gov.in/WriteReadData/Pdf/R20200108.pdf

[10] https://cserc.gov.in/upload/upload_news/14-01-2022_1642161892.pdf

[11] https://rerc.rajasthan.gov.in/rerc-user-files/regulations

[12] http://www.cbip.org/regulationsdata/UP/Feb_2020/UPERC_Consolidated_Regulations.pdf

[13] https://mperc.in/14032023-GEOA-Regulation-G-46-2023-English.pdf

[14] “Maharashtra Electricity Regulatory Commission (Distribution Open Access) Regulations, 2016” retrieved from https://merc.gov.in/regulation_type/current-regulations-open-access/

[15] “Maharashtra Electricity Regulatory Commission (Distribution Open Access) (First Amendment) Regulations, 2019” retrieved from https://merc.gov.in/regulation_type/current-regulations-open-access/

[16] https://kerc.karnataka.gov.in/uploads/media_to_upload1674194570.pdf

[17] https://greenopenaccess.in/assets/files/Green%20Energy%20Open%20Access_rules.pdf

[18] Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Others (2022) 2 SCC 742 (https://main.sci.gov.in/supremecourt/2019/19753/19753_2019_43_1503_32012_Judgement_10-Dec-2021.pdf)

[19] MPERC Petition No. 29/2021 (https://mperc.in/03112021-PNo29-2021-FinalOrder.pdf)

[20] MPERC Petition No. 35/2022 (https://mperc.in/02082022-PNo-35-2022-FinalOrder.pdf)

[21] Petition No. RERC/1327/2018 (https://rerc.rajasthan.gov.in/rerc-user-files/office-orders)

[22] A. No. 171 of 2008,  A. No. 172 of 2008 & IA Nos. 233/08  and 234/08,   A. No. 10 of 2008  and   A. No. 117 of 2009 dated 22.09.2009 (https://aptel.gov.in/judgements/Jug%20in%20A.%20No.%20171%20of%2008%20etc.pdf)

[23] Maharashtra State Electricity Distribution Company Limited v. JSW Steel Limited and Others (2022) 2 SCC 742 (https://main.sci.gov.in/supremecourt/2019/19753/19753_2019_43_1503_32012_Judgement_10-Dec-2021.pdf

[24] Judgment of Appeal No. 131 of 2020 dated 7.06.2021 (https://aptel.gov.in/sites/default/files/Jud2021/A.No.131of20_07.06.21.pdf)

[25] Petition No. RERC/1327/2018 (https://rerc.rajasthan.gov.in/rerc-user-files/office-orders)

[26] LNJ Power Ventures Limited versus Rajasthan Electricity Regulatory Commission and others, [CW-7312/2019 High Court of Rajasthan, Jodhpur Bench] (https://www.livelaw.in/pdf_upload/lnj-power-ventures-ltd-v-rajasthan-electricity-regulatory-commission-and-ors-407750.pdf)

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