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Section 9: Captive generation

Electricity Act • Official Statutory Text & Practice Guide

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Act 2003
Section 8 All 185 Sections of Electricity Act Section 10

Legal Commentary & Landmark Judgments: Section 9

Section 9 of the Electricity Act, 2003 guarantees the statutory right of any person, association, or cooperative society to construct, maintain, and operate a captive generating plant (CGP) and dedicated transmission lines, granting absolute exemption from cross-subsidy surcharge for electricity wheeled for self-consumption.

  • Statutory Right to Establish Captive Plants and Dedicated Lines: Grants an unqualified right to establish, maintain, and operate captive generating plants and associated dedicated transmission lines without requiring transmission or distribution licences.
  • Dual Statutory Criteria under Rule 3 of Electricity Rules, 2005: Requires captive users to hold not less than 26% of equity share capital with voting rights and consume not less than 51% of aggregate electricity generated on an annual basis to maintain captive status.
  • Complete Statutory Immunity from Cross-Subsidy Surcharge (CSS): Section 9(1) proviso read with Section 42(2) explicitly immunizes genuine captive consumers from payment of cross-subsidy surcharge and additional surcharge on electricity wheeled from their captive plants for self-use.
Key Landmark Precedents:
  • Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission (2014) 8 SCC 444: The Supreme Court held that captive generation under Section 9 is a vital statutory exception to cross-subsidy surcharge; captive consumers wheeling power for self-consumption are legally exempt from CSS under Section 42(2).
  • Dakshin Gujarat Vij Co. Ltd. v. Gayatri Shakti Paper & Boards Ltd. 2023 SCC OnLine SC 1276: The Supreme Court affirmed that Rule 3 captive compliance (26% equity and 51% consumption) must be verified on an annual aggregate basis, rejecting attempts by distribution licensees to impose cross-subsidy surcharge via retrospective monthly verification.
Courtroom Practice & Strategic Litigation Guidance:

In regulatory audits or demand notices seeking cross-subsidy surcharges, maintain certified annual shareholding structures, generation logs, and consumption records demonstrating strict compliance with the 26% equity and 51% consumption thresholds, and seek immediate stay from the SERC or High Court under Section 9.

Section 8 All 185 Sections of Electricity Act Section 10