India: Regulation Of Group Captive Power Plants In India

Last Updated: 14 September 2017
Article by Sourav Jena

Captive Generating plant means a power plant set up by any person, association or any company to generate electricity primarily for his or her 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 co-operative society or association1. A dedicated transmission line can also be build, operated or maintained by the same person for the transmission of electricity produced out of such captive plant. Every such person has a right to open access for the purposes of carrying electricity from his captive generating plant to the destination of his use subject to availability of transmission facility by CTU or STU, as the case may be.

A group captive scheme is where someone develops a power plant for collective usage of many commercial consumers. At present, a power project is considered 'captive' if consuming entity or entities consume at least 51% of the power generated and owns at least 26% of the equity. Various capital structures have evolved to qualify as captive under the rules. For example, a major portion of the capital could be preference shares, with only a small portion being equity capital. Thus, owning 26% of the 'equity capital' actually translates to a very small amount relative to the overall investment in the project2.

These plants are regulated under section 9 of the Electricity Act, 2003 and Electricity Rules, 2005.

Group Captive Generation can be attributed to –

  • Cheaper price – This is the most important factor and the reason as to why the modern day industrialists should shift to captive generation. Industrial tariffs tend to be higher than residential and it effects the profit maximization condition. In this way, industries will get cheaper rate. A general survey estimates the market rate to be around Rs. 3 per unit while production cost to be around Rs. 3.50 per unit.
  • Cross subsidy – The consumers of captive power scheme are exempted from paying cross subsidy surcharges (CSS)3.
  • Power deficiency – In case of power cuts, industrial consumers face heavy productivity losses leading to financial losses. Group captive generation, circumvents this frustrating problem entirely.
  • State utility – The consumers in the group captive scheme no longer need to worry about bureaucratic utilities.

Significance of Captive Generation as per NEP

The liberal provision in the Electricity Act, 2003 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.

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.

A large number of captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. These plants offer a sizeable and potentially competitive capacity that could be harnessed for meeting demand for power. Under the Act, captive generators have access to licensees and would get access to consumers who are allowed open access. Grid inter-connections for captive generators shall be facilitated as per section 30 of the Act. This should be done on priority basis to enable captive generation to become available as distributed generation along the grid. Towards this end, non-conventional energy sources including co-generation could also play a role. Appropriate commercial arrangements would need to be instituted between licensees and the captive generators for harnessing of spare capacity energy from captive power plants. The appropriate Regulatory Commission shall exercise regulatory oversight on such commercial arrangements between captive generators and licensees and determine tariffs when a licensee is the off-taker of power from captive plant.4

Imposition of RE Obligation on Captive Generation

In Hindustan Zinc Ltd. v. RERC5, the Supreme Court held that, RERC (Rajasthan Electricity Regulatory Commission) has jurisdiction to formulate and impose, renewable energy purchase obligations and rules incidental thereto, under section 86(1)(e) read with section 181 of the 2003 Act in respect of industries running their own captive power plants. The question under consideration was whether RERC can frame regulations with respect to renewable energy and if so, can it impose such RE obligation on captive gencos and open access consumers and that, whether they have to pay a surcharge in case of shortfall in meeting such RE obligation.

The Apex Court held that, RERC has the power and authority under the Electricity Act, 2003 to formulate such regulations. The Court also stated about Article 51-A(g) of the Constitution, National Policies on Electricity and the involvement larger public interest while considering the validity of the RERC Regulations. In reply to the contentions of the appellants on the ground that such regulation violates article 19(1)(g), the Court replied that such regulation squarely falls under article 19(6) and qualifies to be a reasonable restriction.

In case the legislature intended such power of the regulatory commission to be confined to the distribution licensee, the said words and phrases of Section 86(1)(e) would have read "total electricity purchased and supplied by distribution licensee". The mere fact that no license is required for establishment, operation and maintenance of a captive power plant does not imply that the industries engaged in various commercial activities putting up such captive power plants cannot be subjected to regulatory jurisdiction of the commission and required to purchase certain quantum of energy from renewable sources. The RE obligation has been imposed upon the consumption of electricity whether purchased from distribution licensee or consumed from its own captive power plant or through open access. The RE obligation has not been imposed on the appellants in their capacity as owners of the captive power plants.

The term "in the area of the distribution licensee" under the provision has to read along with definition of "area of supply" as provided under section 2(3) of the 2003 Act which defines it as the area within which the distribution licensee is authorized by his license to supply electricity. Further "total consumption in the area of distribution licensee" would include the consumption by captive power plant consumers also and open access consumers who fall in the "area" of distribution licensee. The other phrase "total consumption" has been used by the legislature in Section 86(1)(e) and the total consumption in an area of a distribution licensee can be by three ways either supply through distribution licensee or supply from captive power plants  by using lines and transmissions lines of distribution licensee or from any other source. The area would always be of distribution licensee as the transmission lines and the system is of distribution licensee, the total consumption is very significant.

Therefore this decision held that RE obligation formulated under the regulations framed by State Electricity Regulatory Commissions is squarely valid and applicable on Captive Generators.

Encouraging Renewable Technology

The fuel mix of captive plants shows a strong bias for coal, lignite, and diesel, with coal-based captive plants envisaged for the future. Presently, the share of hydro or renewables in installed captive capacity is almost negligible. Although low carbon gas-based captive plants are in operation, issues around the availability of gas and volatility in gas prices have been assuming greater importance. Besides encouraging renewable energy for distributed power back-up or stand-alone facilities to replace or complement smaller sized fossil fuel-based captive power units, there should be ample thrust on technological innovations in diesel generators6.

Large group captive capacities that are more efficient and thus less carbon-intensive should be encouraged so that plant capacities are better utilized and surplus power from these captive plants supplied to the grid. Further, taking policy measures to promote rapid development of renewable energy and hybrid low-carbon technologies as back-up and standalone power sources would assist in reducing the carbon footprint of captive power generation.

Footnotes

1. Section 2(8) of Electricity Act, 2003

2. Rule 3(1)(a) and (b) of Electricity Rules, 2005 provides for the requisites of a captive generation plant

3. Section 38, 39, 40, 42 of the Electricity Act, 2003

4. National Electricity Policy, Ministry of Power

5. (2015) 12 SCC 611

6. Nag Tirthankar, "Captive Generation in India: The Dilemma of Dualism", IDFC Report, accessed on 06.09.2017, available at http://www.idfc.com/pdf/report/Chapter-12.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions