Hungry for power: Rise of data centres fuels concerns over energy infra

India's fast-growing data centre sector is emerging as a major new driver of power demand, prompting questions over grid capacity, energy sourcing and long-term infrastructure readiness

The past few years have recorded the rise of a new demand centre for India’s power consumption that has grown silently but strongly, particularly in information technology (IT)-heavy southern states: data centres.

 

Part of the commercial and industrial (C&I) demand segment, which already accounts for almost half the country’s annual power consumption of around 1,540 terawatt hour, data centres are set to lead demand growth in unprecedented ways in the next few years.

 

What is not as clear is whether India’s power infrastructure is ready to absorb the massive growth in load.

What data centres need to operate at scale

Data centres serve as the physical infrastructure housing IT hardware essential for enterprises’ computing and data storage requirements. To operate optimally, they require fibre connectivity, reliable power supply and efficient cooling systems. While most enterprises have captive data centres, adoption of cloud services has spurred demand for leased data centres, also called co-locations. Data centre operators provide the physical infrastructure, fibre connectivity, power supply and cooling systems on rent to enterprises or cloud service providers (CSPs). CSPs, in turn, invest in the IT hardware, including servers or storage systems, and lease these resources to clients, and may own or lease the data centres they offer.

 

India’s current data centre capacity stands at around 1.6 gigawatt (GW) and is projected to jump five times to 8 GW over the next five years, based on commitments made by key players. This rapid growth is estimated to require capex of $30 billion — based on the estimated $4–5 million capex required for setting up 1 MW of data centre capacity — and fuel a five-fold jump in leasing revenues to $8 billion by 2030, according to analysts.

AI, cloud and regulation drive demand surge

“The 30-fold jump in data traffic since 2016–17, led by rising internet and smartphone adoption and growing use of over-the-top (OTT) platforms, digital payments and e-commerce, has spurred data centre demand in India. Regulatory mandates like the Digital Personal Data Protection (DPDP) Act, 2023, and Reserve Bank of India (RBI) guidelines are promoting data localisation as well,” investment banking and financial services company Jefferies said in a report recently.

 

It added that AI adoption is expected to further boost demand, as AI servers require five to six times more power and liquid cooling as compared to non-AI servers. Currently, hyperscale CSPs and the banking sector are the primary clients of data centre operators.

Capital intensity and telcos’ advantage

Given the large capex outlay, access to capital will become crucial to grow in this market. “The realised leasing revenues average at Rs 7,400 per kW per month in India. Using this rate, we estimate the data centre market size at $1.7 billion at present and expect this to rise to $8 billion by 2030. Being used to capex-heavy, long-gestation businesses, telcos are better placed in this market. In India, three of the top five data centre operators (NTT GDC, STT, Airtel Nxtra) are telco-owned,” Jefferies said in its report.

 

The capex volume can be gauged from the fact that Google alone announced in October last year that it would launch a $15 billion AI hub in Visakhapatnam, Andhra Pradesh. The hub will be one of its largest globally and will feature gigawatt-scale operations, extensive energy infrastructure, and an expanded fibre-optic network. In November, Digital Connexion — a joint venture between Brookfield, Reliance Industries and Digital Realty — announced an investment of $11 billion over five years for building a 1 GW AI-native and purpose-built data centre, again in Visakhapatnam.

Global parallels and power consumption risks

The rising investments in India on the back of surging AI usage are also in line with the larger global trend. In 2025, around $580 billion is estimated to have been invested in data centres, according to the International Energy Agency (IEA). For comparison, this is more than the total global investment in oil supply, which is projected to be around $540 billion in 2025.

 

“This comparison provides a telling marker of the changing nature of modern, highly digitalised economies. Driven by surging data centre expansion, electricity consumption by AI-optimised servers increases fivefold by 2030. This contributes to a doubling of total electricity consumption by data centres by 2030,” the IEA said in its World Energy Outlook recently.

 

This rapid build-out of data centres, especially in clusters and around urban areas, comes with its own set of challenges. Grid congestion and connection queues are increasing in many regions in the developed world, where queues for new data centres are often already long. The rapid rollout of data centres also has implications for supply. Most data centres are connected to the grid, and the electricity mix they consume reflects the electricity mix of the region in which they are located. At the global level, renewables remain the leading source of additional electricity for data centres, contributing around 45 per cent of growth through to 2035, or nearly 400 terawatt hour.

Can renewables ease India’s data centre power crunch?

In India, the government has taken significant steps to bolster the data centre sector, granting it infrastructure status and encouraging local and international investment. “Over the past decade, this sector has attracted investments estimated at $6.5 billion, generating an impressive $1.2 billion in revenue last year. The country is now home to 262 data centres and ranks seventh in the world, just behind France and Canada (264 each),” according to Vibhuti Garg, director for South Asia at the Institute for Energy Economics and Financial Analysis (IEEFA).

 

According to her estimates, the country’s data centre capacity is expected to grow exponentially and is likely to consume about 3 per cent of India’s electricity in 2030, up from less than 1 per cent at present. “The challenge is to meet such demands sustainably, and the answer lies in battery storage and renewable energy,” she says.

 

India has five major data centre hubs, including Mumbai, Hyderabad, Delhi NCR, Bengaluru and Chennai. According to Garg, while clustering is a feature of the industry globally, in India such highly concentrated energy demand will further strain local power networks, given that an average data centre consumes as much power as the equivalent of 100,000 homes. “Conversely, these clusters are prime sites for renewable energy resources such as rooftop solar, battery and energy storage systems (BESS) and local microgrids. Globally, renewables power half of the new data centres and India is no exception,” Garg said.