Regulatory ambiguity over the applicability of certain charges to interstate transmission system-connected captive renewable energy projects continues to trouble stakeholders, despite the Ministry of Power notifying the Electricity (Amendment) Rules, 2026.

The amendment states that, pending annual verification, cross-subsidy surcharge and additional surcharge should not be levied where appropriate captive declarations are submitted. However, authorities in several states, including Tamil Nadu, Maharashtra, Gujarat, Madhya Pradesh, Andhra Pradesh, Uttarakhand, and Punjab, are levying these charges upfront.

The upfront deduction of these charges poses a challenge for developers, as captive status can only be confirmed once actual annual ownership and consumption are verified. Until that verification is complete, the power is treated as a third-party supply, incurring the charges.

If these charges are recovered in advance, even if captive compliance is determined later, developers and consumers face avoidable cash-flow strain and uncertainty about whether the amounts will ultimately be refundable.

In certain states, provisional demands are raised prior to the commencement of supply and later reconciled based on annual captive compliance.

Financial Repercussions

The ongoing uncertainty has compounded the problem for developers, making it difficult for them to assess risk when structuring projects and making investment decisions.

Many developers have been forced to divert power from such projects to power exchanges, resulting in lower revenues and higher price volatility, hampering lender and investor confidence.

Shriprakash Rai, Chief Revenue Officer and Head-Commercial and Industrial Business at AMPIN Energy Transition, said, “In nearly all states, the combined size of the cross-subsidy surcharge and the additional surcharge is about 70-80% of the revenue generated by captive power projects. An upfront levy may not only affect the expected returns and financial viability of the project but also weaken the project’s ability to service debt,” Rai noted.

Stakeholders believe this could become a major problem if states do not quickly implement the recent amendments, as they will otherwise need to offer equity support to cover any shortages.

Kishor Nair, Chief Executive Officer at Avaada Energy, said that although the industry has evolved from upfront cash payments to bank-guarantee-based mechanisms, the impact on project viability remains limited. “That said, these requirements introduce difficulties at the customer interface, particularly where customers/counterparties are unfamiliar with such structures. Simplification and standardization would further improve adoption.”

While the regulatory framework is well-defined at the central level, implementation varies across states, primarily in procedures, documentation, and interim compliance requirements.

These variations, although administrative in nature, create uncertainty for developers and consumers operating on a national scale.

Nair emphasized that the uncertainty regarding the cross-subsidy surcharge and the additional surcharge, in isolation, is not a deterrent. However, when combined with variability in other parameters, such as banking, transmission charges, penalties, and loss factors, it can impact decision-making.

“The opportunity ahead is to create a more predictable and standardized operating environment, which will accelerate adoption and enable captive to play a larger role in India’s clean energy transition,” he said.

One Nation, One Grid, and One Market

Captive consumers and independent power producers hope that the upfront application of cross-subsidies and additional surcharges by distribution companies (DISCOMs) is a temporary phenomenon, as transactions involving captive renewable energy projects connected to the interstate transmission system are recent.

Since captive rules are driven by the Electricity Rules, their upfront applicability may not last long.

Rai said, “The central government has clearly stipulated that cross-subsidy surcharge and additional surcharge should not be levied pending verification, subject to submission of a declaration. The same is yet to be adopted by regulators at the state and central levels for meaningful implementation.”

Clarity now exists at the central level; the focus must shift to uniform execution within the concurrent jurisdiction over electricity in India.

Stakeholders believe there should be uniformity across states to avoid undue pressure on developers of ISTS renewable captive power projects, given the uncertainty surrounding the implementation of the central directive.

Nair noted, “The cross-subsidy surcharge and additional surcharge are clearly not applicable to captive transactions under the current regulatory framework. However, in practice, some DISCOMs still seek upfront security, usually in the form of bank guarantees. While this is presented as a risk-mitigation measure, it reflects a level of implementation caution that does not fully align with the intent of captive provisions.”

He added that the National Load Despatch Center must take the lead in unifying procedures and formats in the spirit of ‘one nation, one grid, one market.’ The state electricity regulatory commissions must follow suit.

As the market matures, greater harmonization in implementation will be essential to unlock the captive model’s full potential. It is important that the central electricity regulator issue another directive to the state regulators, requiring them to align with the amendments. Letting uncertainty linger may affect the financial viability of projects and impair their debt-servicing capacity.