updated September 2010*

Captive Power

Captive Power refers to generation from a unit set up by industry for its exclusive consumption. Industrial sector is one of the largest consumers of electrical energy in India. It consumes about 45.92% of total electricity consumption in the country. To sustain and excel in the dynamic global environment, it became imperative for the industries to ensure uninterrupted power supply for performance optimization which subsequently led to the growth in captive power plants. A number of industries are now increasingly relying on their own generation (captive and cogeneration) rather than on grid supply, primarily for the following reasons:

• Non-availability of adequate grid supply

• Poor quality and reliability of grid supply

• High tariff as a result of heavy cross subsidization

Regulatory Provisions

Captive power plants are a necessity for the Indian electricity scenario. The Electricity Act 2003 has been a landmark in institutionalizing captive power. Captive power generation also finds mention in the National Electricity Policy and the Electricity Rules 2005. A draft captive policy is also in the pipeline. Some of the important provisions highlighting captive power are listed below:

• Provisions for Captive Power Plants in Electricity Act 2003- Captive generating plant is defined under Section 2 (8). It is 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 cooperative society or association of persons for generating electricity primarily for use of members of such cooperative society or association. Section 9 (1) further stipulates that a person may construct, maintain or operate a captive generating plant and dedicate transmission lines. It also provides that supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company. Section 42 (2) states that surcharge (for meeting the requirements of cross-subsidy) on wheeling charge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use.

• Provisions for Captive Power Plants in National Electricity Policy- In consonance with the Electricity Act 2003, the National Electricity Policy emphasizes that the liberal provision in the Act 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. The Policy further states that 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. 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. Towards this end, non-conventional energy sources including co-generations could also play a role.

• Provisions for Captive Power Plants in Electricity Rules 2005- These rules state that no power plant shall qualify as a 'captive generating plant' under section 9 read with clause (8) of section 2 of the Act unless it satisfies the following conditions.

(a) Incase of a power plant it is stipulated that not less than 26% of the ownership is held by the captive user and the user has to consume a minimum of 51 % of the aggregate electricity generated in such plant. Incase the captive power plant is set up by a cooperative society, the conditions mentioned above shall be satisfied collectively by all the members. In case of association of persons, the captive users shall hold not less than 26% of the ownership of the plant in aggregate and such captive users shall consume not less than 51% 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 10%.

(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 shoould have 26% of the proportionate equity out of the total equity of the company related to the generating unit(s) identified as captive plants. For example 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.

(c) It shall be the obligation of the captive users to ensure that the consumption by the Captive Users at the percentages mentioned 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.

Installed Capacity

There are 2,759 industrial units having captive generation plants with an installed capacity of 1 MW and above. The total capacity of captive power plants, at the end of 2007-08 has grown to 24,986.39 MW out of which the contribution of hydro was 60 MW, steam 11764 MW, diesel 8648 MW, gas 4209 MW and wind 304 MW. The installed capacity has registered an annual growth of 11.87% from 22335.04 MW in March 31, 2007.

The Captive Power Plants had generated 90476.69 GWh during 2007-08 and registered growth of 10.61% in generation over generation of 81,799.75 GWh during 2006-07. The contribution of Hydro, Steam, Diesel, Gas and Wind generation had been 0.22%, 59.21%, 11.87%, 28.28% and 0.42% respectively in the total captive generation. The industries which have set up these captive plants include a diverse set with players from textiles, engineering, cement, chemical, paper, metals, minerals, sugar, electronics, jute, service and other sectors.

Capacity Addition

Estimated capacity addition from captive power plants in the next five years is around 12000 MW. The surplus capacity from these captive plants can therefore contribute substantially in meeting the `Power for All' target by 2012.

Role of Captive Power in Tiding over the Power Crisis

Captive power, if harnessed optimally can play a significant role in tiding over the prevalent power crisis situation in the country with the average all India peak deficit mounting to nearly 15% during 2006-07. The total installed capacity of captive power plants having 1 MW and above capacity was 22335 MW as on March 31, 2007. The energy produced by captive generating units of 1 MW and above is about 81799.75 MU in the year 2006-07. The Plant load factor of various Captive Power Plants (CPPs) is as below:

The details of the captive power plant range wise and prime mover wise is given as under :-

The average PLF of the captive plants is about 42%. If the PLF of these plants is increased to normative level i.e. 80% for steam and gas and 70% for diesel plants. Sometimes the captive power plants generate surplus power which is not required for their operations. This surplus capacity if added to the grid can be supplied to the power deficit regions in the country. In the long run too, growth in captive power capacity in a way where surplus capacity can be supplied to other consumers would accelerate the process of reliable power supply to each and every consumer. This in turn would require concerted efforts from the Government in form of a conducive policy environment, with special thrust on the concept of group captive plants which results in economies and efficiency. The various issues and concerns of the captive power producers which need to be effectively addressed are as under:

• Many states have their own policies, generally not encouraging captive power, despite shortage of power.

• Most state government policies are leading to :

  • Artificially boosting cost of captive power to bring it close to cost of SEBs power in the form of excessive minimum demand charge for grid support.

  • Eroding competitive strength of industry. Some state governments are imposing Entry Tax @ 1% to 16% on HFO and also high rates of sales tax.

  • Uneconomical wheeling charges & losses being charged to the HT industry over and above complicated procedures for granting permission for wheeling power.

  • Uneconomical purchase rates of surplus capacity from CPPs.

  • Selling power to another state or directly to another consumer is made difficult through inflated charges.

  • High rates of electricity duty on generation from captive power plants (CPP) imposed by states.

Issues

Captive power generation is plagued with a few issues. The main idea behind setting up captive power plants was to ease up the burden on the power producers to supply to industrial consumers along with supplying to other consumers as well. It was felt that those industrial users who have the required resources to set up their own power plants for internal consumption should be encouraged. With the passage of time it was seen that certain issues have cropped up because of which the captive generators are facing problems. The load dispatch centers generally refuse to provide captive plants with transmission capacity/ network to transfer power incase the main plant is situated in a different area or the captive plant wants to schedule its excess capacity. Also these captive plants are charged high open access and wheeling charges. All these charges add up to the cost of the captive plant owner. The cost of producing power along with the high open access and wheeling charges lead to an inflation in the cost of power as compared to buying power from distribution companies directly.

*based on CEA's Statistical Review - May 2009, containing updates till the year ending 2007-08. No further updates exist as in September 2010