Group Captive Solar: The 26% Equity and 51% Consumption Rules Explained for Industries

A power plant is captive if its users own at least 26 percent of it and consume at least 51 percent of the electricity it generates in the financial year. In a group captive, the users meet both tests collectively, usually through a special purpose vehicle (SPV). Each member's own consumption qualifies only up to its proportionate share, and anything beyond that attracts cross-subsidy surcharge and additional surcharge.

What do the 26 percent and 51 percent tests say?

The tests sit in Rule 3 of the Electricity Rules, 2005, which the Ministry of Power substituted by notification G.S.R. 186(E) on 13 March 2026. The rule applies to every plant claiming captive status under section 9 of the Electricity Act, 2003. It says no power plant qualifies unless two conditions hold in the financial year: not less than 26 percent of the ownership is held by the captive users, and not less than 51 percent of the aggregate electricity generated is consumed for captive use.

Two definitions matter for industries. Ownership means proprietary interest and control, or equity share capital carrying voting rights, held directly or through a company's subsidiaries, its holding company and that holding company's other subsidiaries. A captive user that is a company is deemed to include those group companies, treated together as one user. So a plant owned through a group's subsidiary can count the whole group's holding and consumption.

The notification came into force on publication, except Rule 3(2)(d)(ii) and (iii) and Rule 3(4), which took effect on 1 April 2026. The explanatory note records that the Ministry proposed changes in September 2025, consulted again on a January 2026 draft, and finalised the text after stakeholder feedback, in order to resolve ambiguities and reduce litigation.

How does the group captive test work for an association of persons?

For a plant set up by an association of persons, including an SPV, three rules do the work:

1. The 26 percent and 51 percent conditions are satisfied collectively by all the captive users, and their aggregate consumption from the plant is what is tested.
2. An individual user's consumption is admissible as captive only up to 100 percent of its proportionate consumption, calculated from its share in the total captive ownership.
3. A user holding 26 percent or more of the ownership is exempt from that cap. Where shareholding changes during the year, proportionate consumption is based on the weighted average shareholding.

Schedule III of the rules gives the arithmetic. Each user's eligibility limit equals the total captive consumption (Y, as a percentage of ex-bus generation) times its own ownership share (x), divided by the total captive ownership (X). The rules' second illustration shows what this means in practice.

The three users hold 30 percent of the plant between them, which clears the 26 percent test, and consume 51 percent of its output, which clears the 51 percent test. B consumed 28 percent but its limit is 17, so only 17 qualifies as its captive consumption. The rules state that B's entire 28 percent still counts toward the plant's 51 percent verification. The extra 11 percent is treated as supply by a generating company and carries surcharges.

What does it cost to get it wrong?

Rule 3(3) puts the burden on the users to comply during the financial year. If the minimum captive consumption is not met, the entire electricity generated is treated as supply by a generating company, and cross-subsidy surcharge and additional surcharge are levied on that consumption. For an association of persons, consumption beyond an individual user's 100 percent limit is similarly treated as supply, with the surcharges levied on the excess alone.

The rules soften the cash-flow risk during the verification period. Pending verification of captive status for a year, the surcharges are not levied, provided the users have filed the declaration required by the nodal agency or the National Load Despatch Centre. If the plant then fails verification, the surcharges determined by the state commission are payable with carrying cost at the base rate of the late payment surcharge under the 2022 rules.

The surcharge rates are set by each state commission, so the money at stake is state-specific. Use the open-access savings calculator with your commission's current figures, and treat any saving that depends on the surcharge waiver as conditional on passing the test every year.

How is the SPV built and who verifies it?

The rules define an SPV as a legal entity established for the sole purpose of owning, operating and maintaining a generating station that does no other business, and they treat an SPV as an association of persons. That removes an interpretational ambiguity. The practical steps for a group of industrial buyers are:

• Form the SPV and agree the shareholding. Together the buying members must hold at least 26 percent of the equity. The rules do not stop a developer or investor holding the balance.
• Size each member's holding to its expected consumption, because the individual cap is tied to ownership share, unless a member holds 26 percent or more.
• Sign a power sale agreement between the SPV and each member, with take-or-pay terms, tariff, and what happens if a member's load falls or a member leaves.
• File for open access, banking and wheeling with the state's authorities if the plant is off-site.
• Register for verification and file the declaration. The state nodal agency verifies intra-state plants, the National Load Despatch Centre verifies those spread across states, and an appeal lies to a Grievance Redressal Committee set up by the appropriate government.

Our overview of open access solar explains the grid side, and the guide to captive solar versus open access for a 1 MW consumer compares the routes. Green Energy Open Access Rules, 2022 set the eligibility at 100 kW of contracted demand, with no limit for captive consumers, and provide for deemed approval in 15 days.

Which risks should an industrial buyer weigh?

• Annual compliance. The tests run on a financial year. A member that closes a unit or cuts its load can pull the group below 51 percent, and every other member bears the surcharge consequence.
• Counterparty risk. Members are co-owners of one plant. Check each other's finances, and put exit, default and share transfer rules in the shareholders' agreement.
• Share movements. Ownership must stay at 26 percent or more with captive users throughout, so lock-ins and transfer restrictions matter.
• State charges. Wheeling, banking, standby and surcharge rates differ by state and change by order.
• Technical. A solar plant generates in daylight. Check how your state settles banked energy, because consumption outside solar hours is bought from the grid.

Structuring the SPV, the shareholders' agreement and the tax position are matters for your lawyers and chartered accountants. Our part is the plant.

How Secured Engineers helps

Secured Engineers designs and builds captive and open-access solar plants as an EPC contractor, with the design done in-house and the DISCOM and inspector filings for the plant prepared in-house. Solar can sit under one MEPF contract with your electrical, fire and HVAC work. We work from offices in Noida (Delhi NCR) and Ludhiana, across 535+ projects in 18+ states, with 89.77% repeat clients. We do not form SPVs or give legal or tax advice.

If your group is sizing a shared plant, send us the members' annual consumption and connection voltages, and we will size the plant against the load and tell you what the engineering needs. Start from the open access solar page, then message us on WhatsApp, call +91 70099 85817, or ask for a free proposal.