Ministry Proposes Procedure to Verify Captive Status of Power Projects
The CEA will be the nodal agency for verifying the captive status of the projects
The Ministry of Power has proposed a draft procedure to verify the captive status of power-generating projects supplying to users located across multiple states, defining the ownership and consumption terms for captive power projects in the country.
The draft proposal is open for stakeholder suggestions until December 1, 2023.
Verification of consumption criteria will be based on the net electricity generated from the generating units in a generating station, i.e., gross electricity generated less auxiliary consumption, identified for captive use.
If a captive project fails to meet the requisite conditions in a financial year, the project will cease to be a captive power project, and the users will cease to be captive.
Captive Project Criteria
To be labeled a captive power project, a power facility must meet specific ownership and usage criteria. This means that at least 26% of the project’s ownership must be held by the users who will directly benefit from its electricity. Moreover, a minimum of 51% of the electricity generated annually should be set aside for use by these captive users.
In the case of power projects established by registered co-operative societies, the ownership and power consumption conditions should be met collectively by all the members of that society.
If it’s an Association of Persons (AoP), the captive users must jointly possess no less than 26% of the project’s ownership. Additionally, they should utilize at least 51% of the electricity generated annually, aligning with their ownership shares. This consumption proportion has a small allowable variation of up to ten percent.
When a generating station is owned by a company created solely for that station’s operation, the ownership and usage criteria for a ‘captive power project’ are applied not to the entire station but to the specific units within it that have been earmarked for captive use.
Furthermore, captive users must collectively hold at least 26% of the equity related to the generating units specified as the ‘captive power project’ within the generating station. This ensures they have a significant ownership stake in the specific facility section designated for captive use.
Captive users must make sure they consistently meet the consumption percentages mentioned. If they fail to maintain the minimum percentage of captive use in any given year, the entire electricity generated will be treated as if a power-generating company is supplying it.
In cases where the captive power project and its users are spread across multiple states, the Central Electricity Authority (CEA) will verify their captive status based on a procedure approved by the Central Government.
Verification of 26% ownership will be done based on the weighted average of shareholding when there is a change in ownership structure in the financial year under consideration.
The CEA is proposed to be the verifying authority for a captive power project’s status in one state when at least one of its captive users is located in a different state.
In the event of non-compliance or failure to provide requested clarifications by the CEA within the designated timeframe, it has the discretion to determine the project’s status based on the available data or documents submitted by the project.
Finally, CEA is responsible for verifying whether the conditions related to captive status have been met and communicating this status to relevant entities, including distribution licensees (DISCOM), State Electricity Regulatory Commissions, State Load Dispatch Centers (SLDC), captive projects, and captive users.
Captive users can consume electricity either directly or through an energy storage system. Additionally, the electricity consumption by a subsidiary company of a company that is a captive user and the consumption by a company’s holding subsidiary acting as a captive user will also be considered part of the captive user’s consumption.
In case of any change in ownership structure during the year under consideration, a statement with the details of the change in the ownership structure along with the relevant documentary evidence must be submitted to CEA along with the application to verify the status of the project and its captive users.
The verification of ownership and consumption for any change in the captive user during a year will be conducted for the respective periods of change. This involves assessing the proportionate generation and the energy consumed by the captive user during these specific periods.
Technical losses in the electrical network and energy storage system will be included in the energy consumption of the captive users.
The aggregate energy generated from the captive project unit will be the gross energy generated from the unit, less aggregate auxiliary consumption during the time block. The normative auxiliary consumption for similar units may be considered for captive verification status without measured data on auxiliary consumption.
The energy consumption by the captive users with open access will be considered lower than actual energy generated by the captive unit or actual energy drawn through open access limited to a maximum of scheduled open access energy during that time block.
Verification of Status
The captive project must submit an application and the necessary documentation to CEA to initiate the verification. Following this, the project and its captive users should furnish an affidavit before September 30 each year detailing their annual electricity generation, consumption by captive users, and equity shareholding for the preceding year.
Once CEA receives the application and all required documents, it will communicate the status of the project and its captive users within two months. Additionally, the Regional Load Dispatch Centers (RLDC), SLDC, and DISCOMs operating where the project and captive users are located are expected to assist CEA during the verification process.
Verification of Documents
If a power project is a company incorporated under the Companies Act:
- Certificate issued by the chartered accountant or by the company secretary that includes information about the total equity, authorized, issued, subscribed, and paid-up equity share capital of the generators, as well as details regarding the holding of equity share capital with voting rights of the project and that of the captive users.
- Certified copy of the Memorandum of Association and Articles of Association, including any subsequent amendments, should be provided. This copy should also include a certification confirming that these documents contain provisions for engaging in electricity generation.
- Excerpt from the most recent annual return that displays the shareholding details submitted by the generators and captive users to the registrar of companies should be done within one month of filing to facilitate cross-verification.
- Certificate regarding holding of equity share capital with voting rights in the captive project by the captive user duly certified by the chartered accountant or the company secretary.
- A copy of the board resolution authorizing the signatory of the captive project and captive users. This authorized signatory must be the managing director, the whole-time director, or the company secretary.
Any change in the authorized signatory and revocation for approval for electricity generation by the board by way of amendment to the Memorandum of Association and Articles of Association must be intimated by the captive project within 30 days from the date of such change to the DISCOM and CEA.
If a co-operative society owns the generating project:
- Certificate by the chartered accountant showing a detailed breakup of the issued, subscribed, and paid-up equity share capital of the captive project and the details of holding of equity share capital with voting rights by the captive users.
- Certificate of incorporation by the registrar of the co-operative society.
- Relevant extract of the latest annual report of the captive project showing share capital details.
- A copy of the resolution passed by the general body authorizing the chairperson or managing director of the co-operative society as the authorized signatory with the attested signature of such signatory.
Any revocation of sanction for carrying on electricity generation by the society must be informed within 30 days from the date of such change to the DISCOM and CEA.
If an AoP owns the project, they are expected to provide a copy of the business agreement specifying the shareholding of individuals as members of the AoP. This copy should be certified by a chartered accountant and submitted by the authorized signatory of the AoP, along with a certified copy of the nomination of this signatory.
If the project is owned by a special purpose vehicle (SPV), they should submit the same documents as the others depending on whether the SPV is a company of an AoP.
If a shareholder fails to meet the electricity consumption criteria, and the remaining captive users collectively meet the ownership requirement of at least 26%, the shareholder in default must no longer be considered a captive user and will lose the associated benefits.
However, the other captive users who meet the criteria of not less than 26% ownership and consumption of not less than 51% of the total electricity generated (with a permissible variation of up to 10%) per their individual shareholdings will maintain their captive status.
When a shareholder defaults in fulfilling the consumption criteria and other captive users together do not comply with ownership criteria of not less than 26%, the captive project will lose its captive status, and all captive users must forgo the concessions available to a captive user.
Each unit of a captive project should have a separate interface meter with a real-time communication facility with RLDC and/or SLDC.
In September, in amendments to the Electricity Rules, 2005, the Ministry of Power reverted to the previous regulation, allowing collective captive users to hold the minimum ownership of 26% in a group captive open access project.
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