India’s digital infrastructure boom is colliding head-on with an unreliable power infrastructure. As data centres proliferate to support cloud computing, AI workloads, and digital public infrastructure, they are also gradually stressing India’s modernising, yet vulnerable, power grid.
Unlike industry or residential power consumption, which is cyclic in nature, data centres consume electricity continuously, predictably, and at scale.
According to the Takshashila Institution’s report, Building India’s Data Centres, an AI-intensive data centre in India spends half of its electricity on compute alone, while cooling systems account for another 25%. Storage and networking each consume 8.5%, while power conversion and distribution guzzle 6%.
Data centres are hungry for power, and it adds up. According to Shripad Naik, MoS for Power and New & Renewable Energy, India’s data centres consume around 1 gigawatt (GW) of electricity, which is equivalent to powering 750,000 homes, according to a Hexatronic Data Centre report. This is similar to powering most of Jaipur during peak hours, or serving the entire population of Indore.
Data centres are now fundamentally altering energy consumption patterns and forcing companies and policymakers to play catch-up.
The Cost of Staying Online
Electricity costs are now the single largest expense for data centres, often accounting for 40-60% of total operating costs. Takshashila’s comparative analysis shows how dramatically these costs vary by geography.
Annual electricity costs for a comparable data centre are estimated at $89.4 million in India (grid average), compared to $205.5 million in Germany and $261.6 million in the UK. Even the US, often seen as a low-cost energy market, stands at $93.1 million annually.
India’s cost advantage becomes even more apparent under round-the-clock (RTC) renewable group captive arrangements, where multiple industrial consumers jointly own a project to meet their demand using clean energy. Here, annual costs drop to $80-85 million, compared to $109-118 million under RTC third-party procurement—lower than the UK and Germany and comparable to the US. This differential is not academic; it directly shapes where hyperscalers choose to build.
Between 2019 and 2024, India’s data centre market attracted about $60 billion in investments with a CAGR of 24%, according to CBRE South Asia. Due to growing demand for digital services, the market is set to expand rapidly, attracting more foreign direct investment and partnerships with global tech firms.
However, data centres regularly rely on diesel generators for uninterrupted supply during grid failures or power hiccups, significantly increasing costs.
The central grid’s average price in India is$0.085 per kWh, while RTC renewables cost between $0.104–0.112. In contrast, diesel generators cost $0.28 per kWh.
Yet cost is not the only variable. Reliability, proximity, and grid stability increasingly outweigh marginal price differences.
State vs Central Grids
For large operators, the dilemma is not over whether to use grid power, but choosing which grid.
“We have basically everything coming from the states right now,” remarked Alok Bajpai, managing director of NTT, adding that power sourcing decisions are shaped far more by proximity and reliability than by formal jurisdiction. “Whether it is a central grid or state really doesn’t make a difference… reliability and proximity are more important than cost.”
This pragmatic view reflects operational realities. Latency-sensitive workloads benefit from power sources close to the data centre, reducing exposure to transmission failures. At the same time, India’s central grid offers greater redundancy and access to large renewable projects that many state grids cannot yet match.
“There are clear trade-offs,” explained Samrat Sengupta, technical director of ProClime, a carbon credits and net zero consulting solutions company. “State grids generally offer lower reliability and redundancy… but states with higher renewable penetration, like Karnataka, Tamil Nadu, and Maharashtra, can offer better access to renewables.”
Anwesha Sen, assistant programme manager at the Takshashila Institution and the author of the report, told AIM that central grid hubs tend to deliver more reliable, higher-quality electricity, largely because they are supported by integrated solar and wind projects and better transmission infrastructure. As a result, the central grid can help “keep energy prices relatively low for large data centres” that require stable, high-capacity power.
Additionally, though state power grids in tier-2 and edge locations are often less reliable, they play an important role in decentralising electricity supply and easing pressure on the national grid. To maintain uninterrupted operations in these regions, data centre operators are often forced to invest heavily in backup transmission lines, diesel generators, and battery storage, which “pushes overall power costs up despite lower base tariffs,” she said.
The report recommends increasing tariffs for data centres to manage costs for other consumers. However, this may deter investment in the sector due to higher operational expenses and slow down digital infrastructure growth.
The core challenge, she said, lies in reducing transmission and distribution losses across both state and central grids by modernising grid infrastructure, scaling renewable capacity, and integrating on-site power backup systems tailored for data centre operations.
India’s central grid has seen a significant increase in large renewable energy projects through solar parks, green energy corridors, and PLI schemes. As a result, data centres in states with low renewable energy levels, like Uttar Pradesh, Bihar, and West Bengal, may consider switching grids. However, state-specific incentives may be unavailable for those connected to the central grid, Sengupta highlighted.
From an emissions perspective, though, “there is currently very little difference between state and central grids,” he noted.
The Renewable Reality Check
Despite ambitious targets, India does not yet have reliable RTC renewable power at scale. Storage remains expensive, and as energy analysts have pointed out, India’s energy challenge is not a “24-hour problem” but rather a multi-day intermittency problem.
This gap has made solar-hybrid models attractive for data centres.
“Solar solutions can be developed in a hybrid configuration incorporating high-efficiency panels, storage, and support systems,” said Gautam Mohanka, director of Gautam Solar. He added that high-efficiency modules combined with batteries and smart energy management systems allow data centres to “operate with solar power” for significant portions of their load.
State-level open access policies play a decisive role here. “These policies allow data centres to enter power purchase agreements with solar facilities,” Mohanka noted, “thereby reducing reliance on the central grid.”
The priority, Sen said, is to incentivise clean power, enforce efficiency norms, and plan grid upgrades, renewables, and storage around data centre hubs so they become anchor customers for clean energy. At present, coal still dominates electricity generation in India, making data centres a major contributor to greenhouse gas emissions.
Climate Goals Under Pressure
The surge in data centres risks India’s climate commitments to fail by the wayside. Heat maps of data centre concentration show how clustering amplifies local power and water stress globally. India faces a similar risk, particularly in water-stressed regions where cooling loads are substantial.
According to an S&P Global report, data centres currently account for around 0.84% of India’s total electricity consumption, but this share is expected to rise as new investments drive the construction of larger facilities over the next five years. However, Sen noted that India is still “at an early point on the growth curve,” making course correction easier than in more mature markets.
She pointed to India’s expanding power-generation capacity, which crossed the 500 GW installed capacity mark in 2025, according to CREA. The focus is on renewables, grid reliability, and decarbonisation through initiatives such as the SHANTI Act and investments in small modular nuclear reactors.
“Beyond energy use, data centres are also major consumers of water for cooling systems, placing additional strain on this critical and scarce resource,” Sengupta noted.
While a full transition to 100% renewable energy remains the ideal, there are ground realities to consider. “Since RTC renewable power is still not widely available in India, the next best option is procuring renewable energy certificates (RECs and I-RECs),” he added.
But offsets alone are not enough.
Sengupta argued that data centres should be mandated to meet at least one-third of their total energy demand through dedicated RTC renewable energy, procured via open access or captive arrangements. Bringing data centres under India’s Carbon Credit Trading Scheme would also push systematic investment in both renewable procurement and efficiency.
Why Nuclear Is Back in Conversation
The Indian government’s recent move to allow greater private participation in nuclear energy has sparked renewed hope. Nuclear offers what renewables currently struggle to provide: stable, low-carbon baseload power. For data centres, which cannot tolerate intermittency, this makes nuclear an increasingly attractive, even if politically sensitive, option.
Big Tech companies, such as Amazon, Google, Meta, and Microsoft, are already considering going nuclear, signing long-term purchase agreements and supporting reactor restarts or small modular reactors (SMRs) to power data centres. In early 2025, they signed a pledge to “at least” triple global nuclear capacity by 2050.
India is also exploring SMRs, though still in early stages, for their scalability, safety, and suitability for decentralised energy solutions. Currently, India’s nuclear capacity stands at 8.8 GW, with plans to increase it to 22 GW by 2031-32, and 100 GW by 2047.
The Takshashila report also cited that the NITI Aayog and the Department of Atomic Energy are interested in policy and seeking global partnerships for technology transfer. However, the commercial rollout of SMRs may take several years due to regulatory approvals and local capacity building.
The report frames power infrastructure as the single biggest constraint on India’s data centre ambitions. Without parallel investments in generation, transmission, and storage, the digital economy risks becoming energy-limited.
Data centres also force a trade-off between state and central grids, cost and reliability, climate ambition and operational reality. But they also create opportunities. India’s relatively low power costs, especially under captive renewable models, give it a structural advantage in attracting global investment in cloud and AI. It all comes down to whether India can meet the moment.
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