Quick Facts
What group captive is
Group captive is a solar ownership structure that allows large electricity consumers to procure renewable energy at lower effective cost than standard open access by avoiding cross-subsidy surcharge. The mechanism is defined under the Electricity Rules 2005, which establish two thresholds for captive treatment.
The captive consumer(s) must hold at least 26% of the equity capital of the generating company.
The captive consumer(s) must consume at least 51% of the electricity generated by the plant on an annual basis.
When both thresholds are met, the plant qualifies as a captive generating plant. The consumer benefits from regulatory treatment specific to captive plants, most importantly exemption from cross-subsidy surcharge in most states.
For C&I consumers in states with high CSS (Tamil Nadu, Maharashtra, Karnataka, Uttar Pradesh), the savings from group captive over standard open access can be Rs 1.50 to Rs 2.50 per kWh on the contracted volume.
How group captive works
The mechanics involve a special-purpose vehicle (SPV) structure.
A solar developer plans a 50 MW solar plant on suitable land with grid evacuation.
C&I consumers interested in captive solar form an SPV (or consortium) that will hold at least 26% equity in the generating company. Each consumer’s contribution corresponds to their share of expected consumption.
The SPV signs a shareholders agreement with the developer (who retains the remaining equity). The SPV’s beneficial owners are the captive consumers.
A power purchase agreement is signed between the generating company and each captive consumer (or with the SPV that on-sells to consumers).
The plant is built and commissioned. Power flows from the plant through the grid to the consumers’ locations.
Each consumer pays the contracted tariff for the energy delivered, plus applicable wheeling, transmission, and banking charges. Cross-subsidy surcharge does not apply.
Annual reconciliation verifies that the captive group consumed at least 51% of the plant’s output. The equity structure is maintained throughout the PPA term.
Group captive economics
For a typical group captive project:
CAPEX: Rs 4.50 to Rs 5.50 crore per MW (utility-scale ground-mount).
Developer equity: 74% of equity (Rs 1.20 to Rs 1.50 crore per MW).
Captive group equity: 26% (Rs 40 to Rs 50 lakh per MW).
Captive PPA tariff: Rs 3.00 to Rs 4.00 per kWh (before charges).
Wheeling and transmission charges: Rs 0.80 to Rs 1.50 per kWh.
Banking charges (where applicable): Rs 0.05 to Rs 0.20 per kWh.
Cross-subsidy surcharge: Exempt (the main benefit).
Final landed cost to consumer: Rs 4.00 to Rs 5.50 per kWh.
Against grid C&I tariffs of Rs 8 to Rs 12 per kWh, savings are Rs 2.50 to Rs 6.50 per kWh.
The CSS exemption typically saves Rs 1.50 to Rs 2.50 per kWh compared to standard open access in the same state.
Comparison with open access
| Factor | Group Captive | Open Access |
|---|---|---|
| Equity requirement | 26% by captive consumer(s) | None |
| Consumption requirement | 51% by captive consumer(s) | None |
| Cross-subsidy surcharge | Exempt (most states) | Applicable |
| Other charges | Wheeling, transmission, banking | All same charges |
| Contract structure | Equity plus PPA | PPA only |
| Effective tariff | Lower (due to CSS exemption) | Higher |
| Best for | High-CSS states, large consumers | Low-CSS states, mid-volume consumers |
The decision between open access and group captive depends on:
CSS rate in the relevant state.
Volume of consumption (group captive’s overhead justifies for larger volumes).
Consumer’s willingness to take equity (some consumers prefer arm’s-length relationship).
Specific state implementation rules (some states have nuances in captive treatment).
For most C&I consumers in states with CSS above Rs 1.50 per kWh, group captive is economically attractive. For consumers in low-CSS states, open access may suffice.
SPV structure for group captive
The mechanics of meeting the 26% equity requirement typically involve an SPV:
The captive consumers contribute equity to an SPV.
The SPV invests the equity in the generating company (typically a separate entity owned partly by the developer and partly by the SPV).
The SPV signs back-to-back agreements with each consumer for their proportional share of the generation.
The developer retains majority equity (74% in 26-74 structure) and operational control.
The structure ensures all captive consumers collectively meet the 26% threshold without each individual consumer needing to hold 26%. This makes the model practical for multi-consumer arrangements.
Common group captive applications
Large industrial consumers in states with high CSS use group captive to avoid surcharge on significant power volumes.
Cluster-based applications: multiple consumers in an industrial park or technology cluster pool together for a group captive plant.
Pan-India operations: a single corporate buyer can set up group captive in multiple states for its various facilities.
Multi-promoter group captive: several unrelated companies join a captive group for a shared plant, with each contributing equity proportional to consumption.
Group captive in Indian states
Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, and Telangana have active group captive markets due to high CSS in these states.
Gujarat and Rajasthan have lower CSS, making the open access vs group captive choice more nuanced.
Andhra Pradesh has had policy restrictions on group captive in some periods, with implementation requiring careful structuring.
Punjab and Haryana have specific restrictions on open access that affect both open access and group captive.
Tracking the latest SERC orders and state-specific captive guidelines is essential before structuring a deal.
Common mistakes in group captive
Treating the 26% and 51% rules as automatically met without proper documentation.
Underestimating the SPV structuring complexity. Tax, regulatory, and corporate law all interact.
Forgetting that the captive group must consume at least 51% on an annual basis, not just contracted but actual consumption.
Failing to track equity proportions through corporate actions. Mergers, demergers, or share transfers can disturb the 26% threshold.
Skipping due diligence on the developer’s project capability. A group captive PPA failure is more complex to unwind than standard open access.
Not addressing changes in consumption profile. If a consumer’s business changes and consumption falls below their pro-rata share, the 51% threshold may be at risk.
Best practices
For each potential group captive deal, model the economics on a state-specific basis, comparing against open access.
Engage specialists in regulatory and corporate law to structure the SPV and equity arrangements properly.
Document equity participation, consumption commitments, and reconciliation mechanics in clear written agreements.
Include provisions for changes in consumption (sales of facilities, business closures) that may affect the 51% threshold.
Annual review of the 26% and 51% thresholds is essential to maintain captive treatment.
For larger consortiums, consider phased entry and exit mechanisms to accommodate changing membership.
Standards and references
Group captive is governed by the Electricity Rules 2005 (definition of captive generating plant), the Electricity Act 2003, state SERC orders on captive, and corporate law for the SPV structure. CERC has issued guidance on inter-state captive arrangements. The Forum of Regulators has model frameworks. State-specific implementation rules vary considerably.
Related glossary terms
- Power Purchase Agreement
- Open Access Solar
- Cross-Subsidy Surcharge
- Wheeling Charges
- Banking in Electricity
- DISCOM
- SERC
- RESCO Model
- CAPEX Model
Key takeaways
Group captive is a solar ownership structure where consumers hold at least 26% equity in the generating company and consume at least 51% of its output. The mechanism exempts the captive group from cross-subsidy surcharge in most Indian states, saving Rs 1.50 to Rs 2.50 per kWh on the contracted volume. The structure suits large C&I consumers in high-CSS states. Implementation requires SPV-based equity holding, careful documentation, and annual verification of the 26% and 51% thresholds. The model is one of the most cost-effective ways to source renewable energy at scale in India.