HOW TO SETUP CAPTIVE GENERATION PLANT FOR YOUR FACTORY?

1. What is Captive Generation?

A Captive Generating Plant is a power plant setup by any person, cooperative society or an
association of persons (including companies) for generating electricity primarily for their own use 1.
A generation plant is considered captive only if more than 51% of its electricity generated is used by
the owner(s) for their own consumption and the minimum aggregate ownership (or individual
ownership as the case may be) of the captive generating plant is at least 26% 2. Thus, in case there
are multiple owners of a captive plant (also called group captive), they should satisfy the above
requirement of minimum of 51% energy consumption from the captive and collective ownership of
at least 26%.

2. Why Captive Generation?

Electricity is one of the major inputs for any industry and industries require consistent and reliable
supply of electricity. For some industries the quality of electricity (in terms of harmonics, voltage and
other technical parameters) is quite important. Further, reliable and quality supply at reasonable
costs is another important factor for industries. Sometimes, these requirements cannot be aptly
fulfilled by the state utilities. In such cases, going for captive power is the more feasible option.
Captive power reduces dependability on the grid, reduces cost of electricity which is an input to
production processes and surplus electricity can also be sold to the grid, thus bringing in multiple
benefits. Captive power plants have not only benefited the owners, but also the electricity utilities
by supplying extra power when there has been a deficit of power supply 3.

3. Types of Captive Generation

Captive power plants can be classified on the basis of various parameters. A typical classification is
shown in the figure below.

Coal based
Gas based Stand alone
Captive (single owner)
Ownership Technology
Diesel based Connectivity
Baggase based Same premises,
Cogeneration plants connected to grid

Hydro plants
Group Captive
(multiple owners) Wind plants Outside premises,
connected to grid
Solar plants

1
CERC, The Electricity Act, 2003, Retrieved from http://www.cercind.gov.in/Act-with-amendment.pdf
2
Electricity Rules, 2005
3
National Power Systems Conference, Retrieved from http://www.iitk.ac.in/npsc/Papers/NPSC2004/528-Art-
106.pdf
Different types of industries have different choices on the type of captive plant they choose to setup.
For instance, heavy industries such as steel, aluminium and smelting industries which are energy
intensive, generally setup coal based power plants. Sugar industries typically setup bagasse based
plants in order to optimally utilize the waste product from their factories. Diesel generators are
widely used by a variety of industries, including commercial facilities such as malls, office complexes
and hospitals. Diesel generators are also used for supplying peak power and backup power. Several
industries are also using cogeneration plants in which the waste heat from the boiler is effectively
utilized in heating applications, one example of such industry is Arvind Mills 4 which is a textile
industry.

Renewable energy, especially wind and solar are becoming the most sought after technologies for
setting up captive projects. With RE, there are other associated benefits given by Central and State
Governments which have made them an attractive option for investors. For instance, several textile
manufacturers setup captive wind power plants under Ministry of Textile's Technology Upgradation
Fund Scheme, wherein they were provided capital subsidy for setting up the captive plants 5.

For solar rooftop systems, capital subsidy of 30% on benchmark or project cost (whichever is lower)
is provided by MNRE. Further, states have their own capital subsidy for the rooftop systems. Apart
from the subsidies, easier financing, concessional import duties, excise duties and tax holidays are
also provided for grid connected solar systems 6. Another benefit being provided to the solar rooftop
systems is net-metering, in which a bidirectional energy meter is installed at the user end and the
surplus energy generated can be fed into the grid resulting in further saving on costs 7.

4. Benefits of Captive Generation

 For energy intensive industries, captive power provides a cheaper option than power from
discoms, since the discoms charge additional surcharges and cross subsidies from industries.
The Electricity Act of 2003 is an enabler for captive generation. Section 9(2) gives the right
to open access to the captive generator and Sections 38, 39 and 42 provide that open access
cross subsidies and surcharge are not applicable to captive projects. Thus, this can be huge
savings for the industries for which power is a major cost input.
 Captive power is also beneficial for the grid, especially in a power deficit scenario. The
government has encouraged captive power generation to address the situation of power
deficit which has considerably reduced.
 Captive power can also be used when there is no power supply from the distribution
utilities. Hence, in case of load shedding, backup diesel generators can be used to supply
captive power.
 For captive generators based on renewable sources, other benefits are also available such as
Renewable Energy Certificates, discounted wheeling and banking charges, net metering and
carbon credits under the CDM Mechanism 8.
5. Key factors for consideration while setting up captive generation plant
4
Journal of Network Communications and Emerging Technologies, Volume 7, Issue 1, January (2017), Captive
Power Generation System, Retrieved from http://www.jncet.org/Manuscripts/Volume-7/Issue-1/Vol-7-issue-
1-M-01.pdf
5
Global CCS Institute, Evolution of regulatory framework for wind in the State of Tamil Nadu, Retrieved from
https://hub.globalccsinstitute.com/publications/30-years-policies-wind-energy-lessons-12-wind-energy-
markets/evolution-regulatory-framework-wind-state-tamil-nadu
6
MNRE, SPIN, Retrieved from https://solarrooftop.gov.in/FAQ
7
Jain Abhishek, Net Metering policy for rooftop PVs in various states in India, Retrieved from
https://www.bijlibachao.com/using-renewables/net-metering-policy-for-roof-top-pvs-in-various-states-in-
india.html
While deciding to go for setting up a captive generation plant for a factory, the following aspects
should be considered:

 Type of load9 : The type of load depends on the purpose for which the industry is being set
up. Heavy load intensive industries such as steel and aluminium have larger power
requirements and already have access to coal. Coal based thermal captive plants are used
for such industries. Sugar factories typically use biomass or bagasse as fuel as it is the end
product of sugar manufacturing process. Cogeneration is another technology which can be
used if steam is also required in the industrial processes apart from electricity. An example
of such industry is the textile industry in which the waste heat from a steam boiler can be
used for further industrial processes. Diesel generators are another popular option used by
several industries with lesser load requirements. Diesel generators have the advantage of
being able to operate without any auxiliary power supply and are very reliable as standalone
power sources, however, the fuel, i.e. diesel is often expensive and polluting.

Recently, renewable sources of energy such as wind, solar and biomass are also being used
as captive sources by many industries. Though, the efficacy of such captive plants for energy
intensive processes may be questionable due to the variability of power supply, many less
intensive industries including food industries, textile and commercial offices etc. can benefit
from captive renewable energy. Now, even heavy power usage industries such as Delhi
Metro are buying solar power10. Innovative contracting or bundling of renewable power with
conventional power can facilitate supply of power from renewable sources even to energy
intensive industries.

 Land requirement: Land requirement for setting up a power project varies from technology
to technology, hence land availability is a critical parameter in deciding the type of captive
project. Land requirements for various types of power plants are tabulated below:

Type of power plant Approximate Area requirements

Coal based plants 0.5 acres per MW11 (including area required
for coal storage, water reservoir, stores and
Ash disposal area)
Gas based generators 0.2 acres per MW 12
Diesel generators Very compact, small space requirements
Bagasse based/Biomass 1 acres per MW13
Wind
8
Carbon Credit and how you can make money from it, Retrieved from https://www.rediff.com/money/2008
/feb/05inter1.htm
9
Journal of Network Communications and Emerging Technologies, Volume 7, Issue 1, January (2017), Captive
Power Generation System, Retrieved from http://www.jncet.org/Manuscripts/Volume-7/Issue-1/Vol-7-issue-
1-M-01.pdf
10
Financial Express, Delhi Metro to get Solar Power from Madhya Pradesh, Retrieved from:
https://www.financialexpress.com/infrastructure/railways/delhi-metro-to-get-solar-power-from-madhya-
pradesh-first-project-of-its-kind-for-inter-state-supply/1245315/
11
Central Electricity Authority, Review of Land Requirement for Thermal Power Stations, Retrieved from:
http://www.cea.nic.in/reports/others/thermal/tetd/land_review_report.pdf
12
STUDY FOR GAS BASED POWER PROJECT AT MUNDARGI IN KARNATAKA
http://idd.kar.nic.in/docs/7.3Key_Gas_Mundaragi.pdf
13
MNRE, Frequently Asked Questions (FAQs) on Biomass Power Generation, Retrieved from:
https://mnre.gov.in/file-manager/UserFiles/faq_biomass.htm
 Solar 2.5 acre per MW 15

 Financing: Typical financing options for captive plants include self-financing, loans and
financing by equipment contractors. For smaller plants, self-financing is the preferred option
as depreciation on assets can be used in saving taxes. The goal for financing of captive plants
differs from the Independent Power Producers in the sense that the key objective is lower
cost of generation and not higher rates of return 9. In certain cases, the financing is done by
the equipment supplier companies, who do turnkey contracts (i.e. complete commissioning
of the plant) and supply power to the captive consumer at negotiated rates.
 Tariff determination while supplying to a licensee: If some part of power from the captive
plant is being supplied to a distribution licensee then the tariff is determined by the
appropriate commission as per Section 62 (a) of the Electricity Act, 2003 or tariff may be
determined competitively as per Section 63 of Electricity Act, 2003 1.
 Connectivity /Open Access: The captive plant owner has to apply for connectivity to the grid
to discom, STU or CTU as the case may be. For connectivity, the captive owner has to comply
with the rules and regulations of CTU/STU and adhere to the grid codes prescribed by the
Central/State Regulatory Commissions.
 Charges to be paid for open access: Open access charges are the charges payable by the
open access consumers to entities such as discoms or transmission licensees for access to
their network. These charges do not include the generation tariff which is payable to
generator or supplier16. Industrial consumers who use the grid for consumption of power
from their captive plants have to pay the open access charges. However, unlike the usual
industrial consumers, who are supplied power by the distribution licensee, the captive
consumers save on cross subsidy charges and additional surcharges levied by distribution
licensee. The open access charges levied on a captive consumer are as follows 16:
o Wheeling charges: Charges applicable for transmitting the power through discom’s
network. Typically, the open access consumer is connected to the discom network at
33 kV or below. Hence, if both captive generation plant and load are connected to
the same discom network of 33 kV or below, wheeling charges would be payable by
the captive consumer. The wheeling charges are determined by the State Regulatory
Commission in their tariff order.
o Wheeling losses: These are the technical losses of the distribution network of 33 kV
or below. The losses are determined by the State Regulatory Commission and
apportioned to the open access consumers on the basis of their energy drawal.
o State Transmission Utility (STU) charges: The STU grid usually operates at 66 kV, 132
kV or sometimes 220 kV voltages. In case the power from the captive generator
flows through the state grid, STU charges are leviable to the captive consumer.
These charges are also determined by the State Regulatory Commission.
o STU losses: Similar to wheeling losses, STU losses are the losses of the state grid,
which are approved by the State Regulatory Commission.
o PoC charges and losses: These are charges and losses incurred if the power is being
transmitted through the interstate grid. Charges and losses for the national grid are

14
AWEO, Areas of Industrial Wind Facilities
15
Solar Mango, Area required for Solar PV Power Plants, Retrieved from
http://www.solarmango.com/scp/area-required-for-solar-pv-power-plants/
16
Kumar Sumit, Understanding the Open Access Charges, Retrieved from http://indianpowersector.com
/home/open-access/oa-charges/
 determined through point of connection method. These charges are specified on a
monthly basis by CERC and the losses are specified on a weekly basis.
o Banking charges: Banking charges are payable by captive consumers who use the
banking facility. Typically, in banking arrangements, the surplus energy generated by
a captive user is used by the distribution licensee and the same amount of energy
can be used by the captive user at a later time when the energy generation from the
captive plant is insufficient. The distribution licensees charge for banking facility.
Many states have given waiver in banking facility for renewable energy projects.
6. Concerns in captive generation
 Clearances and approvals: Clearances and approvals may be required by the captive
generator. The major approvals required are environmental clearance and safety clearance
from Electrical Inspector.
o Environmental Clearance: Environmental compliance by captive plants is a key issue
since there are no set mandates for environmental clearance. Thermal plants are
quite polluting and cause air, water and land pollution. Non-compliance in terms of
emissions and effluent disposal can lead to exacerbation of environment problems.
However, clearance from the environmental agencies such as MoEF, CPCB and SPCB
can result in higher costs and delays.
o Electrical Inspector approval: For safety of men and material, Electricity Act 2003
under Section 53, provides measures for safety inspection by Electrical Inspector
under the State or Central Government. Adherence to the rules, regulations and
safety measures specified by the Electrical Inspectorate must be complied for getting
clearance from the Electrical Inspector.
 Fuel availability: Fuel availability could be an issue for captive plants, especially if they do
not have firm contracts or captive mines for sourcing coal, or have space constraints for fuel
storage9. Price hikes in domestic or imported fuel prices could also impact the cost of
electricity generated by the captive plant.
 Efficiency: Captive plants may have low efficiency due to smaller size 9 and domestic coal.
Due to such inefficiency, there could be fuel scarcity in the country if captive plants become
mainstream sources of power.
 Human Resources: Captive power plants may lack skilled and trained manpower for the day
to day operations of the power plant 9. Employing skilled personnel can add extra costs to the
tariff of electricity procured from such plants.

7. Conclusion
While captive generation certainly has benefits, careful consideration of the various factors such as
technology, fuel, nature of load and cost to benefits need to be assessed for evaluation and selection
of power procurement option. Captive generation can also play a supplementary role in supplying
power to the grid and alleviating power shortages in the country.