Policy for Captive & Co-Generation Plants

GOVERNMENT OF INDIA
MINISTRY OF POWER
SHRAM SHAKTI BHAWAN, RAFI MARG
NEW DELHI-110 001

9th October, 1995

P.
SECRETARY
D.O.

ABRAHAM
NO.

6/1/Tariff/Captive

Dear
Subject: Private Power Promotion through Captive Power /Co- generation route.

Power/95
Shri

Since the announcement of private power policy of the Government of India in 1991, a number of proposals,
including a large number of proposals from foreign promoters, have been received through Independent
Power Producer (IPP) route. However, as the gestation period for large power projects is long, we will be
able to complete very few projects in the near future and, therefore, we would face huge shortage of power.
At the end of 1996-97, the energy shortage is visualized at 15% and peaking shortage at 30%.
2. There is a need, therefore, to open an alternative route other than Private Generating Company, where
the industries themselves will be interested to meet their own power demand by pooling resources together.
Captive Power Plants offer such an alternative. The captive power plants of industries may be allowed to sell
their surplus power, if any, to the Grid, on a remunerative tariff, as per mutually agreed terms. Setting up of
captive power plants would quickly add to the generating capacity in the country. I would also like to add
that Co-generation and small power production is an important ingredient of private power policy in a
number of countries.
3. Few developing countries, in their recent restructuring process of the electricity sector have brought out
important changes, among others, open access to the transmission system of the State grid on payment of
mutually agreed wheeling charges for facilitating new entrants in the power sector on the captive power/cogeneration route. The States can assure such an entry to the new proposed captive/co-generation power
plants.
4. You may, therefore, create an institutional mechanism which may allow captive power units an easy and
automatic entry into the Power Sector by quickly clearing captive power applications by State Governments,
and giving them rational tariff for purchase of surplus power by the grid and third party access for direct
sale of power to the other industrial units.
With best wishes,
Yours sincerely,
Sd/(P. ABRAHAM)

To
All Chief Secretaries

COGENERATION POWER PLANTS

TO

BE

PUBLISHED

IN

EXTRAORDINARY
PART
PUBLISHED
Ministry

THE

GAZETTE

I-Section
BY
of

OF

INDIA
1
AUTHORITY
Power

RESOLUTION
A-40/95-IPC-I
New Delhi, Dated: 6th November , 1996
Subject : Promotion of Co-generation Power plants
1.0

Introduction

1.1 Since the announcement of private power policy of the Government of India in 1991, a number of
proposals, including proposals from foreign promoters, have been received through Independent Power
Producer (IPP) route. However, as the gestation period for large power projects is long, it would be possible
to complete very few projects in the near future and, therefore, we would face huge shortage of power. At
the end of 1996-97, the energy shortage is visualized at 15% and peaking shortage at 30%.
1.2 It is, therefore recognized that there is an urgent need to open an alternative route, other than Private
Generating Company, where the industries themselves will be interested to meet their own power demand
by pooling resources together. Captive Power Plants, because of the inherent benefits offered by them, were
considered as one such alternative route. Accordingly, State Governments were requested to accord high
priority to setting up of captive plants in their States and also encourage absorption of the available surplus
power, to be remunerative tariff. A detailed guide line to this effect was issued through a letter to All Chief
Secretaries of States from the office of the Secretary (Power), Government of India (D.O. NO.
6/1/Tariff/Captive

Power/95,

9th

October,

1995).

Through a subsequent communication (DO No.A-31/94-IPC dated January 30, 1996) regarding clearance
process for captive power projects, it was clarified that the captive power plants of any other persons
[including juristic persons and excepting generating companies] are not subject to the provisions of Section
29(2) of the Electricity (Supply) Act. Section 43(1) of the Act provides that the Board may enter into
arrangement with any person producing electricity within the State for the purchase of the power on such
terms as may be agreed, of any surplus electricity which that person may be able to dispose of. However, as
per Section 44(2A) the Board shall consult the authority in cases where the capacity of new generating
station, or as the case may be additional capacity proposed to be created by the extension or replacement
exceeds 25 MW. Hence, in terms of Section 44 of the Act, captive power/cogeneration plants require the
approval
of
the
State
Electricity
Board
only.
The Board has to simply refer the proposal to the Central Electricity Authority for consultation, under Section
44(2A) of the Act, in cases where the capacity of the new generating station exceeds 25 MW. Ministry of
Power, Government of India, identifying the need for some rationale for fixing of the tariff for the captive
power plants had suggested setting up of an institutional mechanism allowing captive power units an easy
and automatic entry into the state grid and announcement of a mutually-agreed, rational rate of purchase of

incremental power generated by the captive plants (not lesser than the variable cost of power and not
greater than that allowed under the two-part tariff notification).
1.3 It is generally recognized that industry in general and a process industry in particular needs energy in
more than one form and if the energy requirements and supply to the industrial units are carefully planned
the overall efficiency of a very high order is possible to achieve. With the combined objectives of promoting
better utilisation of precious energy resources in the industrial activities and creation of additional power
generation
capacity
in
the
system,
encouragement
to
co-generation
plants
in
the
country is being suggested.
2. Definition of Cogeneration

2.1 A cogeneration facility is defined as one which simultaneously produces two or more forms of useful
energy such as electric power and steam, electric power and shaft (mechanical) power etc. Cogeneration
facilities, due to their ability to utilize the available energy in more than one form, use significantly less fuel
input to produce electricity, steam, shaft power or other forms of energy than would be needed to produce
them separately. Thus by achieving higher efficiency, cogeneration facilities can make a significant
contribution
3.

to

energy

Objectives

of

conservation.
the

Policy

3.1 As electricity and heat are fundamental inputs to most of the industrial activities the present policy
strives to achieve the dual objectives of achieving higher efficiency in fuel use in the industry as well as the
availability of surplus electricity to the State grid, by combining power and heat generation for industrial
use.
4. Process for creation of Cogeneration Facility

4.1 With a view to promote setting up of cogeneration plants, it is proposed that the industry having
cogeneration potential would be allowed to develop a power generating facility without necessarily going
through the competitive bidding process, for projects of any size. In addition, in such cases the projects for
the purpose of CEA clearance would be treated in the same way as any proposal for setting up of captive
plant is required to be treated by the State Government under section 44 of the Electricity (Supply) Act,
1948.
5. Cogeneration Plants

5.1 Two basic cogeneration cycles have been identified:

i.

Topping Cycle: Any facility that uses fuel input for power generation and also utilizes for useful heat for
other industrial activities. In any facility with a supplementary firing facility, it would be required that the
useful heat, to be utilized in the industrial activities, is more than the heat to be supplied to the system
through the supplementary firing by at least 20%.

ii.

Bottoming Cycle: Any facility that uses waste industrial heat for power generation by supplementing heat
from any fossil fuel.

6.

Qualifying

Requirements

6.1 A facility may qualify to be termed as cogeneration facility if it satisfies certain operating and efficiency
standards which are explained below.
(I)

Qualifying

Requirements

for

Topping

Cycle:

The qualifying requirements for topping cycle would depend on the type of fuel used as the overall efficiency
levels likely to be achieved for power generation varies with the choice of fuel. Essentially, any cogeneration
facility meeting the efficiency requirement will be more efficient than any combination of separately

generated electricity and steam using the state-of art- technology. As such while setting the efficiency
standards, the achievable efficiency in case of a particular fuel has been kept in consideration. In addition,
for all cases of cogeneration facility, it would be required that at least 20% of the total energy output is
in the form of useful thermal energy.
As the cogeneration project would be feeding power to the state grid, in order to maintain grid stability and
facilitate proper planning of the power system, it would be required that the cogeneration facility must be
available to supply at least 5MW of power for at least 250 days in a year.
(a) Using coal as fuel
Assuming that the achievable thermal efficiency for power generation using coal as fuel hovers around 35%
while the boiler efficiency for steam generation observed in Indian industries is about 90%, the efficiency
standard set for any cogeneration facility is as under:
The sum of useful power output and one half the useful thermal output be greater than 45% of the facility s
energy consumption.
(b) Using Liquid Fuel
Assuming that the achievable thermal efficiency for power generation using liquid fuel based combined cycle
power generation system is about 50% while the boiler efficiency for steam generation observed in Indian
industries is about 85-90%, the efficiency standard set for any cogeneration facility is as under:
The sum of useful power output and the useful thermal output be greater than 65% of the facility s energy
consumption.
(c) Refinery Bottoms as fuels
Refinery Bottoms or those by products of refining process would be permitted to be used as fuel for
cogeneration facilities to be set up by any petroleum refining unit which can not be easily marketed due to
transportation problems or due to low heat content. However, to qualify as a cogeneration plant, the sum of
useful power output and one half the useful thermal output be greater than 45% of the facility s energy
consumption. And in any calendar year, not less than 90% of the total heat input for the facility should come
from
refinery
residue
or
the
refinery
bottom.
(ii) Qualifying Requirements for Bottoming Cycle
In case of bottoming cycle, the total useful power out put in any calendar year must not be less than 50% of
the total heat input through supplementary firing.
7. Tariff fixation

7.1 While fixing tariff from a cogeneration plant, the basic consideration would be to share the benefits of
higher efficiency. In addition, the other advantage available to the industry is availability of assured supply
of power and possibly at a tariff lower than what the SEBs normally charge from their industrial consumers
due to cross subsidization. On the other hand SEBs also stand to benefit from the fact that they qet surplus
power at a rate lower than the marginal cost. However, in the bargain SEBs would have to let go some of
their good customers. The tariff should, therefore, reflect these issues.
7.2 The tariff can be fixed by the SEB by making adjustments for the higher efficiency and applying the
same on the marginal cost of generation. Accordingly, the SEB can notify an acceptable tariff, reflecting the
modified marginal cost of generation and pay at that rate for the life of the plant barring major fuel price
escalations.
7.3 Alternatively, the SEBs may chose to notify the first year tariff in two parts, fixed and variable, and
announce an tariff escalation formula considering the fact that with the servicing of debt, recovered through

depreciation, the fixed cost component comes down every year and at the same time the fuel cost increases
due to fuel escalation.
7.4 However, realizing the fact that ultimately the power sector would be required to move away from the
cost based tariff structure, to get the full benefits we can probably use cogeneration plants for this switch
over as even if there is slight error in fixing of the marginal tariff the damage would be very limited and can
be corrected quickly in the subsequent cogeneration plants. This would also provide useful bench marks for
other major IPPs.
7.5 In case of topping cycle plants using refinery bottom as fuel, the tariff would be fixed by the SEB on
negotiated basis, providing for recovery of fixed costs of the power generating facility and the variable cost
which could be determined by making adjustments for efficiency factors and other operational factors.
Typically, the tariff for such plants may be represented by
Tariff = FCC + 0.8*Variable cost
8. Procedure for Obtaining Qualifying Status

8.1 The Qualifying Status to any facility would be granted by the State Government. The power producer
would be required to submit the necessary documents to the State Government/SEB to establish fulfillment
of the qualifying requirements in terms of efficiency criterion, choice of fuel, power generation technology
and the stages of heat absorption in the industry.
9. Generation Schedule

9.1 As the availability of surplus power to be fed into the State grid will vary during the day depending on
the operating cycle of the industry and may also vary with season if the industrial operations are season
specific such as sugar mills etc. the power producer and the SEB/State Government would be required to
mutually work out the schedule for power supply to the grid considering the industry and grid requirements.
sd/(P. ABRAHAM)

Secretary to the Government of India

CAPTIVE CIRCULAR
The captive power policy is refined from time to time to encourage such plants to meet immediate
shortages. The circular of January 9, 1997 is one more initiative to encourage captive generation

1.
January 9, 1997
D.O

No.

A-31/94-IPC

Dear
Government has made competitive bidding mandatory for solicitation of proposals for Independent Power
Projects (IPPs) and clarified vide D.O of even number dated 18.1.1995 from Secretary (Power) that all
future projects should come through the process of competitive bidding. The Central Electricity Authority
was asked not to entertain in future proposals which have not been processed through the competitive
bidding procedure.
2. Government of India have also, vide its letter of even number dated 9th October, 1995, emphasized the
need to open an alternative route other than the private generating companies where the industry

themselves would be interested to meet their own demand by setting up captive power plants.
Subsequently, vide letter of even number dated 30th January, 1996, it was clarified that proposals regarding
captive power plants to be setup under the provisions of Section 44 of Electricity (Supply) Act,1948 would
not come under the purview of Section 29-31 of the Act which relate to CEA s detailed scrutiny of proposals
and techno-economic clearance. The intention was that, in view of the large demand supply gap, existing
industries would be encouraged to set up their own captive power plants to add quick capacity in the
electricity supply industry.
3. Though we had received a positive response from the States and the industrial houses, it has been
suggested by some States to the Government of India that some of the industries, though keen to set up
power plants captive to the use of the industry, find it difficult to set up the power plants through the
existing companies as they do not have the requisite expertise in the field of development of power plants
and their operations as well as the inability of some of these companies to bear the heavy investment cost.
Setting up of the power plants by an independent entity, either within the premises of the existing
industry/factory or without, has, therefore, been favoured, with the total power generated dedicated to the
existing industry/groupof industries but without envisaging any sale of power to the State grid. However,
these would be generating companies by definition (hence an IPP) and the government of India instructions
dated18.1.1995 referred to above require that selection of the IPP be through competitive bidding by the
State Government or the State Electricity Board (SEB). This is not being preferred by the industry as the
power plant to be set up exclusively for the supply of power to the industry, mostly within the existing
premises, at mutually agreed tariff, and, therefore, they would prefer to have the choice to negotiate with
parties on a bilateral basis instead on the IPP being selected through Competitive Bidding by the States or
the SEBs.
4. Government have considered the above suggestion and decided that, in order to facilitate setting up of
generating stations by IPP exclusively for the captive use of an industry or a group of industries, without
involving any sale to State grid, the selection of such IPPs through competitive bidding by the States or the
SEBs would not be required and the provision contained in letter dated18.01.1995 is relaxed to this extent.
With best wishes,
Yours sincerely,
Sd/(P. Abraham)
Dr. E.A.S. Sarma

Secretary (Power)
D.O. No. 4/1/97-IPC-II
New Delhi dated January 19, 1998
Dear
Please refer to D.O. letter No. A-31/94-IPC dated January 9, 1997 from Ministry of Power, advocating
setting up of generation facilities by Independent Power Producers (IPPs) exclusively for the captive use of
an industry or a group of industries, without involving any sale to the State Grid. Such measures can readily
result in additions to the existing generating capacities. In fact, a few States have tried this approach and
have been able to set up power projects, jointly owned and operated by industrial consumers in their
respective areas.
2. You are aware of the urgent need to add new generation capacity to meet the rapidly increasing demand
for electricity. As of now, there are 31 power projects in the private sector which have been accorded
techno-economic clearance by the Central Electricity Authority and are awaiting financial closure. The main

constraint in most of these cases is the reluctance on the part of lenders to extend loan assistance to the
IPPs beyond what the escrow limit of a State permits. As a result of the subsidized tariff structure of the
SEBs, you are aware that the escrow ability of most states is low, making it difficult for the IFIs to sanction
loans to finance the project.
3. To some extent, the problem could be mitigated, if groups of existing and new industrial consumers could
come together and jointly set up and operate captive power projects for meeting their captive requirements,
with the supply to the grid being restricted to the minimum. For this purpose, as has been done in AP and
Gujarat, these consumers could be located at different places, but at the same time, could constitute a joint
venture and wheel power from the generating station to the consumer end, subject to satisfactory
commercial arrangements being firmed up with the concerned SEB.
4. Kerala and Maharashtra have recently announced schemes involving captive power projects (Annexure
1.1 & 1.2). Such an arrangement could provide additional generation capacity without the State
Governments having to provide guarantees/Escrows. An assessment has recently been made of the total
energy generated by captive power plants in 1994-95 in various States in the country as well as the
installed generating capacity in certain selected States. The details are at Annexure II.1 & II.2. From this, it
is evident that the total captive capacity in the country is more than 11,000 MW and most of the captive
power plants in the country have low levels of capacity utilisation. From the information contained in
Annexure-II, it appears that the captive generation capacity in your State is around _______ MW. (As per
Annexure-II). I would suggest for your consideration that the State Government may adopt a captive
generation policy that will facilitate the maximum use of the available capacity to meet the increasing
demand for electricity in the State. While there are different approaches to this, as is reflected in the policy
initiatives taken by Maharashtra and Kerala, I would request you to consider adopting, among other things,
differential peak/off-peak tariffs with time-of-the-day metering to facilitate utilisation of this capacity to the
maximum extent during the peak hours in your State. With many States having to go in for power projects
based on expensive liquid fuels, captive capacity on which investment has already been sunk could perhaps
offer a cheaper mode of electricity supplies to bridge the gap between supply and demand.
5. I request you to evolve a captive generation policy and let us know the tangible steps taken by your
Government in this regard.
With regards,
Yours sincerely,
Sd/(E.A.S. Sarma)

To
All Chief Secretaries/Secretary (Energy)/Chairmen, SEBs
Chairman, Central Electricity Authority.

Policy Guidelines of Government of Kerala for Installation of Captive Power

Generation
1. Applicants eligible for captive power generation

1.1 Software/ Hardware technology parks declared by Government.

1.2 Techno parks declared by Government.
1.3 Industrial parks declared by Government.

1.4 Kinfra parks established/declared by Government.

1.5 Industrial estates declared by Government.
1.6 Industrial growth centres declared by Government/ Kerala State Industrial Development Corporation.
1.7 Export Processing Zone declared by Government.
1.8 Existing licensees.
1.9 Existing Industries.
1.10 New Industries.
2. Capacity of Captive Power Plant (CPP):

Minimum: 3 MW Maximum: 25 MW
3. Generation voltage and frequency:

The

CPP

shall

be

three

phases,50

Hz,

11

Kv.

4. General conditions

The applicants in items 1.1 to 1.7 are allowed to install CPP for the use of the consumers within the
Parks/Estates/Centres. Those applicants can sell the power generated from the CPP to the consumers within
the Parks/Estates/Centres. For this purpose, the applicants will be declared as sanctioned holders. They shall
apply to Government for declaring them as sanction holders as per Section 28 of the Indian Electricity Act,
1910 and obtain sanction.
5 Statutory sanction/clearance.

It is the responsibility of the applicants who desires to install CPP to obtain all statutory clearances/ sanction
from the respective authorities.
6. Consumption and sale of energy

6.1 The Kerala State Electricity Board will not purchase energy from the CPP having the capacity of less than
3 MW.
6.2 The owners of the CPP can consume the energy generated from the CPP for their own use. They shall
not sell energy generated from the CPP to anybody else other than the KSB Board. The KSB Board will
purchase the energy generated from the CPPs fully or the excess quantity. The purchase price will be at the
rate determined on mutually agreed terms.
6.3 as far as licensees are concerned, they can sell energy generated from the CPP to the consumers within
the licensee=s area and also to the KSB Board. But the licensees shall not sell the energy generated from
the CPP to anybody else other than the consumers within the licensee area or KSB Board. The selling price
of energy to the Consumers within the area of the licensee shall be determined by the licensee. But the
selling price of energy to the KSE Board will be determined on mutually agreed terms.
6.4 the licensees/sanction holders having CPP can purchase energy from KSE Board. But the
licensee/sanction holder will not get the privilege of grid tariff for this purchase. The price will be at the rate
determined by the Board.
6.5 the KSE Board will sell the energy purchased from the CPPs back to CPPs at a pooled price determined
by the KSE Board and taking into consideration the price at which energy was purchased from the CPPs.
6.6 KSE Board will not purchase energy from the CPPs between 2200 hours and 0500 hours.
7. Sanction for installation of CPP.

7.1 The Deputy Chief Engineers, Transmission Circles in the respective shall be authorized to accord

sanction for installation of CPPs having capacity less than 3 MW for which applicants have to send the
applications to the respective Deputy Chief Engineers, Transmission Circles. The Depty Chief Engineers will
give a decision within one month, failing which it will be presumed that he has no objection and the
applicants can go ahead with installation of generators.
7.2 Sanction for installation of CPPs having capacity 3 MW and above shall be accorded by the KSE Board.
The applications in such cases shall be sent to the Chief Engineer (Thermal & Commercial) Vaidyuthi
Bhavan, Pattom. The K.S.E.B. shall communicate a decision within 45 days, failing which it will be presumed
that KSEB has no objection for installation of generators.
8. Banking of energy

The excess energy generated from CPP wheeled to the KSEB grid can be banked for a period not exceeding
one month from the date of wheeling. The Board will charge 2 paise per unit for the energy banked per
month or part thereof. Banking is not permissible between 2200 hrs. and 0500 hrs.
9. Settlement of Bills

The energy transaction will be billed and settled on monthly basis by the Special Officer (Revenue), KSEB
10. Grid Discipline

The owners of CPP have to abide by grid discipline and will not be entitled for any compensation in the event
of grid failure due to force-majeure conditions, fluctuation in voltage, frequency or other reasons. The same
condition will apply for synchronization of CPP with KSEB grid
11. Metering

11.1 The owners of CPP have to install Time of-Day meter having import-export registering facility and allied
equipments at their cost in the nearest 66 KV, 110 KV or 220 KV sub station of the KSE Board, where the
power from the CPP is wheeled to the KSEB grid. The meter and allied equipments will be the property of
the owners of the CPP. It is their responsibility for their upkeep and replacement. If the meter and or the
allied equipments become defective or cease to register the quantity of electricity the, owners of CPP shall
replace it by a good meter /equipment within one month of they becoming defective /ceases to register. If
the owners of CPP fails to replace the defective meter/equipment within the said period of one month, the
KSE Board will discontinue the purchase or sale of energy from the CPP until the meter / equipments is
replaced by good meter/equipments.
11.2 The KSE Board will provide a check meter near to the very same location where the owner of the CPP
has installed his own meter.
12. Method of billing

The method of billing of the energy transaction will be as per the guidelines issued by the SREB for the
interstate exchange of energy. The same procedure will apply during the period when the meter or the allied
equipments of either parties are defective or cease to register the quantity.
13. Calibration of the meters

The meters installed by both the parties will be jointly calibrated before installation. The recalibration will be
done jointly once in every six months from the date of installation. If recalibration is found necessary for a
lesser period due to any reason, it shall be done jointly.
14. Interfacing with KSEB grid

14.1 The CPPs having capacity of 3 MW and above alone will be permitted to be synchronized in the KSE
Board Grid Substation. The synchronization shall be done at the agreed voltage as per the scheme approved
by Chief Engineer. The owner of the CPP shall send detailed scheme to the Chief Engineer (thermal &
Commercial), Vaidyuthi Bhavan, Pattom, Thiruvananthapuram.
14.2 The equipments for synchronization, control, protection step up /step down transformer and inter

locking shall be purchased and installed by owner of the CPP at his cost.
14.3 The owner of the CPP has to construct the transmission line at his cost for wheeling the power
generated from the CPP to the nearest 66 KV, 110 KV or 220 KV grid substation of the KSE Board.
15. Independent use of power from CPP

If any industry or licensee wants to install captive power plant for its own use independently, there shall not
be any possible inter connection between its load fed by its generation and KSEB supply. The industry or
licensee shall purchase and install change over switch or circuit breaker with inter lock at its cost, as per the
scheme approved by the Chief Engineer (Generation) for which detailed scheme shall be sent to the Chief
Engineer (Generation).
16. Reduction of contract demand

No reduction in contract demand and or rebate in MP charge shall be allowed in proportion to the energy
wheeled or sold to KSE Board.
17. Power supply during shut down/maintenance of CPP.

The KSEB will supply the power required for the construction of CPP at the rate applicable to other
consumers to whom KSEb sells power. The owner of the CPP has to remit the cost of construction of the
power line / installation of all equipments in advance. The power supply will be provided on out of turn
priority.
18. Construction Power

The KSEB will supply the power required for the construction of CPP at the rate applicable to other
consumers to whom KSEB sells power. The owner of the CPP has to remit the cost of construction of the
power line /installation of all equipment in advance. The power supply will be provided on out of turn
priority.
19. Fuel

The owner of the CPP can use any fuel permitted by the Government of India or any other statutory
authority. Non conventional sources can also be used as per the terms laid down by the competent
authority. The tariff for the power generated will be worked out on mutually agreed terms subject to the
notification dated 30.03.92 of Government of India and its subsequent amendments, if any. It is the
responsibility of the owner of the CPP to obtain fuel allocation and all other clearances.
20. Commitment charges

If the owner of the CPP wants to keep the KSEB supply as stand-by, he has to pay to KSEB, stand by
commitment charge which will be equal to double the demand charge applicable as per the tariff notification
issued by KSEB from time to time for the voltage class applicable to other consumers. This is in addition to
energy charge.
21. Electricity Duty

The owners of the CPP are exempted from payment of Electricity duty for the energy generated and
consumed by their units for a period of next five years. But they should pay electricity duty for the energy
sold outside their jurisdiction allowed by these rules.
22. Subsidy / Finance

The KSE Board will not pay any subsidy or render any financial assistance to the owners of the CPP for the
installation of the power plant.
23. Tariff Concession / Subsidy / Incentives

In respect of industries eligible for concessional tariff / incentives subsidies the KSE Board will to take into
account concession / incentives / subsidies for determining the tariff for the power purchase by the KSE
Board from CPP or sold to them.

24. Land

The land whether private or Government required for installation of CPP has to be purchased by the owner
of the CPP.
25. Exemption from power cut

The owner of the CPP can consume the power generated from the captive power plant without any
restrictions during the period of power cut for their own use or use of their consumers.
26. Wheeling charges and loss on Transmission

Wheeling charge at two percent (2%) of energy wheeled an Transmission loss at ten per cent (10%) of the
energy
wheeled
will
be
debited
to
the
account
of
the
owner
of
the
CPP.
27. Penalty for low power factor

27.1 The owner of the CPP has to install suitable meter to record the power factor of the CPP at his cost. If
no such meter is installed, the power factor shall be determined by taking the ratio of the reading of the
Kwh and KVAh taken monthly.
27.2 The power factor of the CPP shall be maintained not less than 0.95 lag by the / owner of the CPP at his
cost, if it drops below 0.85 lag, the selling price of energy by the owner of the CPP to his consumers or to
the KSE Board shall be reduced as indicated below :Below 0.85 lag up to 0.75 lag
2% of the energy charge for every reduction of 0.01 power factor from 0.85 lag.
Below 0.75 lag
3% of the energy charge for every reduction of 0.01 power factor from 0.85 lag.
Should the power factor drop below 0.75 and so remain for a period of two consecutive months it must be
brought to not less than 0.85 within a further period of six months by the owner of the CPP failing which
without prejudice to the right of the Board to reduce the selling price of energy from the CPP and without
prejudice to such other rights as having accrued or any other rights of the Board, the wheeling of the power
generated from the CPP to the KSEB grid, synchronization with the KSEB grid and purchase of power by
KSEB will be discontinued.
28. Submission of applicable

The parties interested in installation of CPP have to submit the applications to the Chief Engineer (Thermal &
Commercial) KE Board, Vaidyuthi Bhavan, Pattom, Trivandrum 695004.
29. Time of completion of the project

The owner of the CPP to whom approval has been granted by the Board shall commission the CPP,
synchronize with KSEB grid and put into commercial operation within one year of the date of approval of the
scheme by the Board failing which the KSE Board will not purchase the power from the CPP.
30. Agreement

The owner of the CPP to whom sanction has been accorded has to execute an agreement with Chief
Engineer (Thermal & Commercial)

STATEMENT-I
ENERGY GENERATION BY CAPTIVE POWER PLANTS
(FINANCIAL YEAR 1994-95)
Region/State/ Energy Generated (GWH)
U.T.s
Hydro Steam Diesel Gas

Wind

Total

NORTHERN REGION
Haryana

376.59

287.35

87.8

751.74

Punjab

250.81

75.13

325.94

Rajasthan

594.21

368.1

23.5

985.81

Uttar Pradesh

4010.03 428.42

218.47

4656.92

1951.83 212.31

1782.67 5

3951.81

Madhya Pradesh 0

3419.81 237.49

156.18

3813.48

Maharashtra

882.73

176.48

516.96

1576.17

WESTERN REGION
Gujarat

SOUTHERN REGION
Andhra Pradesh

2607.7

562.78

120.47

3290.95

Karnataka

14.89

670.92

695.25

1381.06

Kerala

130.96

24.28

122.34

277.58

Tamil Nadu

736.46

480.77

138.62

126.32 1482.17

EASTERN REGION
Bihar

3000.34 68.01

2.18

3070.53

Orissa

6980.72 168.7

7149.42

West Bengal

1095.94 198.12

1294.06

14.89

27387.92 4102.69 3407.04 131.32 35043.86

All India% share

Neg
(All India)

78.15%

11.70% 9.70%

100%

PLF (All India)

52.00%

11.30V

36.3%

Neg

48.40%

STATEMENT-II
INSTALLATION GENERATION CAPACITY IN CPPS IN MAJOR STATES/REGIONS
NORTHERN REGION (2263) (FIGURES IN MW)
HARYANA

373

PUNJAB

197

RAJASTHAN

522

UTTAR PRADESH

1070

WESTERN REGION (2736)

GUJARAT

1122

MADHYA PRADESH

804

MAHARASHTRA

792

SOUTHERN REGION
ANDHRA PRADESH

933

KARNATAKA

560

TAMIL NADU

876

EASTERN REGION
BIHAR

953

ORISSA

1423

WEST BENGAL

777

NORTH EASTERN REGION

ASSAM

334

ALL INDIA

11013

Government of Maharashtra
Industries, Energy and Labour Department
Government Resolution No. MISC 1195/CR-8/NRG-7
Mantralaya, Mumbai-400 032

Dated December 20, 1997

POLICY FOR CAPTIVE POWER GENERATION

PREAMBLE

To promote captive generation, the Government had enunciated its policy vide Government Resolution
No.MSC-1095/CR-2776/NRG-2 dated 20.12.1995. In the light of this policy, Maharashtra State Electricity
Board (MSEB) is required to give prior concurrence under section 44 of the Electricity )Supply) Act, 1948.
Certain implementation problems were brought to the notice of the Government by some promoters. In
order to add to the total installed capacity of the State through captive generation and to further the process
of industrial development, the question of giving further relaxation to the existing policy was under
consideration of Government.
GOVERNMENT RESOLUTION

Government has now decided to modify its existing policy, dated 20.12.1995 and enunciates the following
policy.
All persons/institutions who intend to install captive generation units in the State of Maharashtra are
required to take a prior clearance under Section 44 of the Electricity (Supply) Act, 1948 from MSEB ;which
would be given as per the following policy:(1) Industrial unit which intends to install captive generation sets for self consumption of electricity shall be
permitted to do so under the condition that such self consumption should be at least 75 per cent of the total
installed capacity. This self consumption may include consumption by ancillaries integrated with the main
process and located on the same industrial plot.

(2) Balance 25 percent of the installed capacity may be sold to any 2 (two) third parties anywhere in the
State through wheeling to be permitted by MSEB/licensees after recovery of appropriate wheeling charges
and transmission losses.
(3) MSEB and the licensees are empowered to finalize the technical and commercial arrangements between
captive power producers and the third party purchasers.
(4) Clearance may also be granted for setting up of a captive power plant by a company (captive generating
company) different from the consumer company (captive user company) on the condition that the user
company owns at least 51 per cent share of the generating company.
(5) Such captive generating company as referred to in the Sr. No.(4) above will be permitted for sale of
surplus electricity to third parties as per Sr. No.(1) and (2) above.
(6) Such captive generating company as mentioned in Sr. No.(4) above or any other company intending to
sell surplus electricity would require a prior permission from the Energy Department of the State
Government under Section 28 of the Electricity (Supply) Act, 1948.
(7) This policy is also made applicable to all the licensees in addition to the MSEB.
(8) MSEB may purchase this surplus power generating from such captive units at a rate which is 10 per cent
lower than their last year=s average rate of realization except during the night time period of 10 p.m. to 6
a.m. .
(9) If the captive generating company requires a standby from the MSEB/licensees, then in case of planned
shut down, the rate of standby leviable by MSEB/licensees shall be double the existing rate. In case of an
unplanned shut down, the charges leviable by MSEB/licensees would be 3 times the charges leviable by
MSEB/licensees would be 3 times the existing tariff. The event of planned shut down must be notified at
least 3 months in advance in writing to the MSEB/licensees. A unit can be shut down for annual overhaul
only once in a year for a continuous period of maximum one month.
(10) This policy is made applicable to the existing captive units as well.
Sd/(
Deputy Secretary (Energy)

L.V.

Nilesh

CAPTIVE POWER POLICY (Circulated in July 2001)

1.0 OBJECTIVE :

According to the 16th Electric Power Survey conducted by CEA, the country has energy shortage of 7.8%
and peaking shortage of 13.0% for the current year. The capacity addition required by the end of 11th Plan
to meet these shortages is nearly 100,000 MW. In view of the massive investments required for capacity
addition it is necessary that the existing investments in the power sector are fully utilized and captive power
plants which are utilized only partially are encouraged to sell power to the grid. The following general
guidelines are recommended to the States to enable a more liberal framework for setting up Captive Power
Plants and utilizing their surplus output for benefit of the consumer.
2.0 PERMISSION AND APPROVAL:

i) Permission for installation of Captive Power Plant is to be obtained from SEB under Section 44 of
Electricity (Supply) Act, 1948. For captive power generation exceeding 25 MW, SEB will accord permission
under Section 44 of Electricity (Supply) Act, 1948 only after consulting the Central Electricity Authority as
per Section 44 (2A) of Electricity (Supply) Act, 1948.
ii) The following would be eligible to install a Captive Power Plant:-

a. A consumer of electricity
b. A group comprising more than one consumer as a joint venture.
c. An actual user of power but not a consumer.
d. A group of actual users of power, but not consumers, as a joint venture.
e. A group comprising both consumers and actual users of power as a joint venture. but excluding A
Generating Company@ as defined under Section 2(4-A) of Electricity (Supply) Act 1948.
3.0
a) If the captive plant falls under the category of hydro or co-generation plant, such plant, irrespective of its
size and status of power supply position in the State, may be permitted liberally.
b) If the Captive Power Plant is based on coal or liquid fuel or gas and if the State is deficit in power supply,
the installation of such captive power plant could normally be allowed and the capacity of the plant
permitted up to 200% of the requirement of the industry for its own use.
c) If the Captive Power Plant is based on coal, liquid fuel or gas and the State is surplus in power, the
installation of such captive plants can still be considered in the following cases:(i) If the industry requires uninterrupted power supply due to the nature of the industry and if the State/SEB
or Successor entity are not able to guarantee supply of such requirements, the proposal for setting up of
such a captive power plant for the uninterrupted power supply requirement of the industry can be
considered.
(ii) If the industry requires quality power supply (within the stipulated variations in voltage and frequency)
and if the State/SEB or Successor entity are not in a position to guarantee the power supply of such
stringent requirements, the proposal for installation of the captive power plant of the required capacity can
be considered.
(iii) If the cost of generation from the captive plant is found to be lower compared to the tariff of the power
supply from the grid, the proposal may be considered after thoroughly examining the cost and tariff aspects.
d) Banking facilities may also be provided to the Captive Power Plants so that available capacities are
utilised to the extent possible and when required. The rates for banking may be determined on mutually
agreed terms.
e) Units in Special Economic Zones (SEZ) and industrial estates may be allowed to set up CPPs liberally.
4.0 If the CPP is of co-generation in nature, and the capacity exceeds 25 MW, the proposals shall be
forwarded to CEA for consultation under Section 44(2A) of Electricity (Supply) Act, 1948 duly certified by the
concerned Utilities that the proposal qualifies for the status of co-generation. (In this regard, MOP Resolution
No.A-40/95-IPC.I, dated 6th November, 1996 may be seen for reference).

5.0 Permission of State Electricity Board is required to synchronize and operate with the Grid.
6.0 All statutory clearances for setting up the CPP have to be obtained by the owner of the CPP of his own
accord.
7.0 CONDITIONS FOR USAGE OF CAPTIVE POWER
Energy generated from captive power generating units:
i) Can be used by the owner of the captive power generation plant.

ii) Can be used by sister concern (s) of the owner of the captive power generation plant.
iii) Balance power after usage in items (i) and (ii) above can be sold to SEB, if required by them.
iv) Third Party sale is also permissible, with the approval of SEB.
v) Captive generator could be asked not to draw power from the grid during peak seasons/hours.
8.0 WHEELING CHARGES & RULES
Prior approval of SEB has to be obtained for wheeling of power. Captive generated power may be wheeled
only where interface for synchronization with the grid exists. Wheeling will be done to any service (High
Tension or Low Tension). The cost of interfacing lines, switchgear metering and protection arrangement may
be met by the CPP and/or the Board as per mutual arrangement. Similarly, the wheeling charges may be
worked out based on pooled rates of wheeling charges worked out by the Central State Transmission Utility
of that Region and the amount of energy wheeled.
9.0 PRICING OF THE BALANCE POWER SOLD TO S E B
i) For the FIRM POWER, the pricing for the Captive Power Generation could be in single part i.e. rate for
units alone. The tariff for sale of power from thermal CPPs to SEB may be fixed after mutual discussions
between SEB & CPP and could be based on pooled variable charge of thermal power stations operating in the
SEB plus some percentage of the pooled variable charges as an incentive to CPP generator. In case of hydro
CPPs also, the tariff for sale of power to SEB may be fixed after mutual discussions between SEB & CPP and
could be based on pooled variable charge of thermal power and incentives. To attract more power from CPPs
into the Grid, tariff could also be based on the highest variable cost in the system or the actual variable cost
of CPP, whichever is lower, and some percentage of the variable cost as an incentive.
ii) The rate for INFIRM Power could be at 75% of the normal rate.
iii) Tariffs for purchase of power from captive plants may be determined by SERCs wherever they have been
established.
10.0 BILLING METHODS
i) Separate billing may be carried out for export and import of power by the Captive Power Generator.
Import of power may be billed according to the Tariff Notifications of Government from time to time.
ii) Export billing may be done for the units exported as per the mutual agreement between SEBs & CPP.
11.0 DEFINITIONS
Definitions are given in Annexure.

DEFINITIONS

Annexure

i). CONSUMER means any person who is supplied with electric energy by a State Electricity Board.
ii) ACTUAL USER OF POWER means one who is not a consumer but uses power out of captive power
generation.
iii) GRID means electrical network of a State Electricity Board
iv) BOARD means State Electricity Board or its successor entities.
v) CPP means Captive Power Plant.
vi) FIRM power means quantity of power in units committed by the owner of the Captive Power Plant to be
sold to State Electricity Board annually.

vii) INFIRM power means quantity of power in units sold to SEB without any commitment.
viii) CAPTIVE POWER PLANTS may be defined as plants meant for catering to the needs of a particular
industry/consumer or group of industries/consumers for their own use, which should be not less than 50%
of the total output of the plant.
ix) GENERATING COMPANY means a company registered under the Companies Act, 1956 and which has
among its objects the establishment, operation and maintenance of generating stations