MASTERCLASS > CEF Explains

Captive power generation

Context

For any industry to thrive, the quality, reliability and cost of electricity are important factors. In absence of reliable and cost-effective electricity through the local distribution company (discom), an electricity customer (typically industrial or commercial), undertakes captive power generation. In other words, the customer sets up its own power generation plant for self-use. This reduces the customer’s dependability on the grid and compensates it against sale of surplus power to the discom.

A captive generation plant in India may be set up by any person, co-operative society or an association of persons (including companies) for generating electricity primarily for self-consumption. A captive power plant can also serve multiple stakeholders through a group captive mechanism, if it satisfies the following conditions - 51 per cent of its electricity generated is used by the owner(s) for self-consumption and minimum aggregate (or individual) ownership of the captive generating plant is at least 26 per cent.

Captive generation may be classified on different basis:

  • Ownership: Single owner and multiple owners (group captive)
  • Technology/Fuel: Coal, gas, diesel, bagasse, hydro, solar, wind, etc.
  • Connectivity with grid: Standalone (off-grid), same premises (grid-connected) and Outside premises (grid-connected)

Relevance & impact      

Captive consumption in India has increased steadily over the years and has reached nearly 14 per cent of total electricity consumption.[1] States of Odisha, Gujarat, Chhattisgarh, Karnataka, Uttar Pradesh and Rajasthan are states with the highest captive consumption volumes, with the first three having 61 per cent, 24 per cent and 47 per cent as the share of captive consumption in overall state’s electricity consumption, respectively.[2]

Electricity cost optimisation is a key driver for captive power generation. For a typical large captive power plant (above 25 MW), electricity generation cost is generally below INR 5.0/kWh depending on the type of fuel/technology (coal, gas, solar, wind, etc.) and location of the plant. On the other hand electricity tariffs across key industrial states go as high as ~INR 8.0/kWh, which proves strong economics for typical industrial customers to setup captive power plants.[3] Given that industrial customers cross subsidise residential customers for supply through discom, this trend is leading to loss of revenues for the discoms as customers shift to captive generation.

Government is also providing multiple incentives in form of discounted wheeling and banking charges, net metering, etc. for renewable energy captive generation, thereby promoting renewable energy captive power. With increasing decentralised generation of electricity, it is expected that more and more customers would start exploring new avenues to produce or procure electricity at a cheaper tariff. Going forward discoms may need to observe this trend closely when they plan distribution networks at such sites.

Who should care

  • Renewable energy developers & investors
  • Industrial and commercial electricity customers
  • Discoms
  • Policy makers


[1] As of FY 2016-17. Source: CEA General Review 2016-17
[2] Captive consumption includes the self-use of power generated from a captive power plant and excludes the import/export from the grid
[3] Based on CEEW-CEF analysis. MSEDCL’s (Maharashtra) tariff order 2018 has been referred to for tariff computation. A general industry of 5 MW contracted load, 0.8 load factor, supplied at 33 kV has been assumed.