To enable access to reliable and quality power, the Electricity Act, 2003, provides for provisions for setting up captive generating plants (CGPs), i.e. power plants set up primarily for a person’s own use. Further, the Electricity Act exempts persons operating CGPs from the payment of cross-subsidy surcharge and additional surcharge, unlike consumers procuring power through third-party open-access arrangements, thereby encouraging captive consumption.The Electricity Rules, 2005, set out the requirements for a power plant to qualify as a CGP. Herein, at least 26 per cent of ownership must be held by the captive user(s) and at least 51 per cent of the electricity generated annually should be consumed for captive purposes. Certain additional conditionalities have also been prescribed, including that in the case of an association of persons (AoP), the captive users collectively must hold at least 26 per cent ownership and consume at least 51 per cent of the electricity generated, proportionate to their ownership shares in the captive generating plant, with a permissible variation of up to 10 per cent (collectively, ‘Captive Requirements’).Over time, judicial precedents have adopted varying interpretations of the Captive Requirements, creating uncertainty for stakeholders. These varying interpretations have now been settled by the Supreme Court in the matter of Dakshin Gujarat Vij Company Limited v. Gayatri Shakti Paper and Board Ltd, 2023, SCC OnLine 1276 (Dakshin Gujarat Vij), providing clarification on various issues.One of the primary uncertainties prior to Dakshin Gujarat Vij was whether special-purpose vehicles (SPVs) constitute AoP for the purposes of the Electricity Rules. The Appellate Tribunal for Electricity (APTEL) in Kadodara Power Pvt Limited v. Gujarat Electricity Regulatory Commission, 2009, SCC OnLine APTEL 119 (Kadodara Power), held that SPVs are AOPs, thereby mandating that each captive user consume electricity in proportion to its ownership share in the captive generating plant (Proportionality Principle). Conversely, later the APTEL in Tamil Nadu Power Producers Association v. Tamil Nadu Electricity Regulatory Commission, 2021, SCC OnLine APTEL 19 (Tamil Nadu Power Producers Association), held that SPVs are not AOPs. Ultimately, the Supreme Court in Dakshin Gujarat Vij affirmed that SPVs are AOPs and must adhere to the Proportionality Principle. This clarity is especially important given that most CGPs are structured as SPVs.Further, in the Tamil Nadu Power Producers Association case, APTEL held that verification of minimum shareholding and minimum consumption at the end of a financial year must be based solely on the shareholding and consumption existing as on that date, without considering variations during the year. The Supreme Court, in Dakshin Gujarat Vij, overruled this view and held that verification must account for shareholding and consumption maintained throughout the financial year, and cannot be determined merely with reference to the position at year-end (Weighted Average Principle).Another significant clarification in Dakshin Gujarat Vij concerned whether the captive status of a generating plant can be transferred through a transfer of its ownership. The Supreme Court noted that Section 9 (1) of the Electricity Act uses the words “construct, maintain or operate a captive generating plant”, and held that these terms must be read disjunctively, permitting transfer of ownership without loss of captive status. This clarification is important in the context of the present market structure, where independent power producers set up, operate and maintain CGPs, while captive consumers acquire ownership by subscribing to the shares/purchasing shares of the SPV owning the CGP.The Central Electricity Authority (CEA) has published the updated ‘Procedure for Verification of Captive Status of Such Generating Plant, Where Captive Generating Plant and Its Captive User(s) are Located in More Than One State’ (CEA Verification Procedure), in line with the Electricity Rules and the decision in Dakshin Vij Gujarat. The CEA Verification Procedure is applicable for all CGPs where the consumers are in more than one state, who desire to submit their claim for verification as captive generating plant and associated captive user(s) to the CEA. Additionally, several states including Telangana and Karnataka have notified their own procedures for verification of captive status of intra-state consumers of CGPs, with other states expected to follow suit. While the Supreme Court’s decision in Dakshin Gujarat Vij provides regulatory clarity on the existing Captive Requirements, the same may be short-lived. In September, the Ministry of Power (MoP) has introduced the draft Electricity (Second Amendment) Rules, 2025, which seek to amend the Captive Requirements to the effect that the requirement of maintaining minimum 26 per cent ownership and minimum 51 per cent consumption may now be collectively met by the captive consumers without regard to the Proportionality Principle. Further, the draft amendments seek to restrict the captive benefits to 110 per cent of a captive consumer’s proportionate entitlement, calculated with reference to their share in the ownership of the power plant. Additionally, in October 2025, the MoP introduced the draft Electricity (Amendment) Bill, 2025, which inserts a proviso under Section 9 of the Electricity Act empowering the appropriate government to prescribe eligibility criteria for CGPs and their users – a provision that appears to conflict with the existing framework under the Electricity Rules that already prescribe such eligibility criteria, thereby creating potential ambiguity.In conclusion, while the decision in Dakshin Gujarat Vij has brought long-awaited clarity to the interpretation of Captive Requirements, the subsequent draft amendments introduced by the MoP signal a potential shift in the regulatory landscape. Stakeholders must, therefore, closely monitor these developments to effectively structure captive power arrangements going forward.