Projects, Energy and Infrastructure Quarterly Milestones (January-March 2026)

On 13 March 2026, the Ministry of Power notified the Electricity (Amendment) Rules, 2026, (Amendment), which aim to redefine and regulate Captive Generating Plants (CGP) under Rule 3 of the Electricity Rules, 2005. The changes include:

• Revised definition of captive user: The definition now includes a company’s subsidiaries, its holding company, and other subsidiaries of that holding company, treating them as a single entity. This aims to facilitate group captive structures by allowing affiliated entities in the same corporate group to aggregate ownership and consumption to qualify for captive status.
• Recognition of Special Purpose Vehicles as Association of Persons: Special Purpose Vehicles (SPV) are expressly recognised as an Association of Persons (AoP). The twin criteria of minimum 26% ownership and 51% annual consumption now apply only to identified captive units (rather than the entire station) with ownership calculated proportionately.
• Collective compliance for AoP with flexibility for individual users: Where captive generation is undertaken through an AoP, the ownership and consumption criteria must be met collectively by all captive users. An individual user’s deviation from its proportionate share no longer disqualifies the entire plant’s captive status. However, cross-subsidy and additional surcharges apply to consumption exceeding 100% of a user’s proportionate share.
• Incentive for single user captive structures: The proportionate consumption cap is waived where a captive user owns 26% or more of the shares. This is likely to incentivise single captive user structures, as they can claim captive benefits on the entire CGP generation.
• Revised verification mechanism: Verification of captive status of power plants will now be conducted by a state-designated nodal agency for intra-state cases or by the National Load Despatch Centre (NLDC) for inter-state cases, replacing the Central Electricity Authority. Pending verification, cross-subsidy and additional surcharges will be stayed on the basis of declarations submitted by CGPs. However, if users fail their verification, they must pay applicable surcharges with carrying costs calculated at the base rate of late payment surcharge specified in the relevant rules.¹
• Operational flexibility through weighted average shareholding: The Amendment permits the use of weighted average shareholding to determine consumption eligibility where ownership patterns fluctuate during the year, enhancing operational flexibility.

Overall, the Amendment moves the captive power requirements in favour of more flexible, group-oriented models.

The CERC (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) (First Amendment) Regulations, 2026, (CERC Amendment), notified on 24 March 2026, aim to increase investment in renewable energy. Key amendments include:

• Expanded eligibility for Renewable Energy Certificates: Plants that do not meet captive generating conditions but consume power themselves are now eligible for Renewable Energy Certificates (REC). This broadens participation and incentivises entities outside strict captive conditions to invest in renewable energy.
• Framework for Virtual Power Purchase Agreements: A regulatory framework has been introduced for RECs under Virtual Power Purchase Agreements (VPPA). Now, RECs issued to generating stations under VPPAs will automatically be transferred to the consumer or designated consumer, who may use them to meet their Renewable Purchase Obligation (RPO) or Renewable Consumption Obligation (RCO).
• Timeline for REC application: Distribution licensees or open access consumers must apply to the NLDC for RECs within three months of state commission certification.
• Restrictions and compliance safeguards: Excess RECs may be carried forward for future compliance, but cannot be sold on power exchanges or through traders. Generating stations must notify the NLDC of all projects entering VPPAs to ensure accurate recordkeeping and prevent double-counting.

The revised definition of captive users and the VPPA framework together expand access to renewable energy, enabling companies to meet sustainability targets without being restricted by the location of generating stations.

On 27 February 2026, the Central Electricity Regulatory Commission (CERC) operationalised the Carbon Credit Trading Scheme, 2023, by enabling Carbon Credit Certificates (CCC) to be traded on power exchanges through the CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026 (CERC Regulations). This aims to further the development of the Indian carbon market. Key aspects of the CERC Regulations include:

• Dual market structure: The CERC Regulations structure the carbon market into two distinct segments: (a) “Compliance Market” for “Obligated Entities” (industries mandated to meet specific emission targets), and (b) “Offset Market” for “Non-Obligated Entities” (voluntary participants).
• Administrative authorities: The Bureau of Energy Efficiency (BEE) has been designated as the administrator and tasked with formulating transaction procedures. The Grid Controller of India will function as the registry overseeing CCC accounting.
• Trading mechanism and price controls: Trading will take place on power exchanges monthly (or as approved). To manage market volatility, “Compliance Market” trading will be governed by a CERC-approved “Floor Price” and “Forbearance Price,” defined as the minimum and maximum trading prices, respectively.
• Regulatory oversight and enforcement: CERC reserves broad emergency powers to issue binding directions to power exchanges and the registry to curb market distortions, including abnormal price fluctuations, sudden volatility, or unusual spikes and crashes in trading volumes. The CERC Regulations also enforce strict market discipline – entities that place sale bids exceeding actual CCC holdings more than three times in a quarter will face a six-month trading ban.

The framework lays the groundwork for a regulated carbon market in India, enabling monetisation of emission reductions while ensuring market integrity through regulatory oversight. While international experience with emerging carbon markets suggests that overly rigid controls in the early stages can suppress liquidity and dampen investor confidence, the CERC Regulations reflect a pragmatic starting point, providing structure and discipline while retaining regulatory discretion to adapt as market conditions evolve. Considering it is a nascent market, the floor and forbearance price mechanism will help prevent price volatility and manipulation.

That said, entities operating in emission-intensive sectors would benefit from close monitoring of the BEE’s detailed procedures and early trading cycles, as the operational parameters of the market are likely to be refined in practice.