The Energy Cost of India's Data Centre Expansion

India currently has 262 data centers as of 30th April 2025. By 2030, India's current 960 MW data center capacity could nearly double to 9.2 GW, according to Nomura's forecasts. 6 Meanwhile, a report by Anarock Capital estimates the value of India’s data center industry at $10 billion, generating approximately $1.2 billion in revenue during the financial year 2023–24 (FY24). Major metropolitan tech hubs like Mumbai, Chennai, Bengaluru, Hyderabad , Noida and the National Capital Region (NCR) are at the forefront of India’s data centre boom. About 70% of the nation's IT power capacity is shared between Chennai and Mumbai, with 49% coming from Mumbai alone. Chennai experienced a startling 340% increase in capacity between 2022 and 2024, while Mumbai's capacity nearly doubled.7 Other cities are also emerging as major participants, including Hyderabad (4%), Bengaluru (8%), Pune (5%), and Noida (9%). Strong market demand and operational momentum are reflected in high occupancy rates of about 76%.8 India is also focussing on establishing edge data centers in Tier-2 and Tier-3 cities such as Jaipur, Kochi, Vizag, Lucknow, Patna, and Bhubaneswar.

Data centers are witnessing tremendous growth but as India positions itself to become a global data center hub, it is crucial to critically examine the environmental costs that it brings with it.

In 2022, data centers used between 1% to 1.5% of the world's electricity, but according to the IEA, AI will be the main factor driving this increase, which may reach 8% by 2030.10 By the end of the decade, data centers in India may account for as much as 3% of the nation's electricity consumption, up from the present 0.5% according to Nomura estimates. The increasing demand from data infrastructure might put additional strain on supplies in India, where many urban areas are already struggling with water scarcity. This would put industry, agriculture, and urban water and energy security at danger.

India is increasingly emphasising on green and sustainable data centers for example, in Jamnagar, for example, Reliance is constructing gigawatt-scale AI data centers that run solely on renewable energy.11 Companies such as Princeton Digital Group have announced billion-dollar investments to construct AI-ready data centers with liquid cooling, high-density racks, and load-bearing floors.12 The infrastructure itself is getting smarter; companies like Yotta and Sify are utilizing AI to forecast maintenance requirements, improve cooling systems, and track energy consumption in real time.13 In addition to increasing efficiency, these actions are helping lower carbon emissions and operating expenses.

States across India are adopting diverse strategies to power their growing data centers. Tamil Nadu under its data center policy outlines that in order to get incentives data centers must meet at least 30% percent of their energy needs from renewable energy sources with subsidies for using solar and wind. Karnataka has indeed taken the lead on eco-friendly measures in its Data Centre Policy by removing the 5 MW cap on green-power tariff reimbursement and tying key incentives to renewable-energy usage. Karnataka previously limited data centres’ eligibility for green-power tariff reimbursement of up to ₹1.25 crore.

Despite ongoing efforts, India's energy infrastructure remains vulnerable, constrained by the limited availability of renewable resources due to geographical and climatic factors. Establishing data centers in water-scarce or drought-prone regions risks exacerbating existing water stress and triggering social tensions. With the country's energy mix still heavily reliant on fossil fuels, it is crucial for India to realign its infrastructure strategy to ensure sustainability and resilience in the face of growing digital demands.

While India is rapidly expanding its data center footprint, sustainable growth demands more than just attractive policy incentives. To ensure long-term viability, environmental sustainability must be embedded from the outset in infrastructure, site planning, energy sourcing, and regulatory governance.

Avoid fragile ecosystems- Site selection must be based on rigorous environmental impact assessments, prioritizing areas with minimal ecological sensitivity and avoiding zones with high biodiversity or water stress.

Context-sensitive locations- Favour naturally cooler regions with reliable access to clean energy to reduce cooling loads and carbon emissions.

Zoning regulations- States should introduce carefully drafted zoning regulations that are needed to avoid any disturbances to residential areas, which might become an issue of concern in the longer run, with proper consideration for the future expansion of data center infrastructure. Clarity regarding zoning laws is also required, as currently not every state policy provides clarity regarding data centers. Since states like Tamil Nadu and Rajasthan do not have zoning restrictions, this allows data centers to be established in any area, including residential and green land, which could have a substantial impact on the environment such as noise and air pollution in residential areas.

Mandate renewable sourcing- Set minimum thresholds for renewable energy sourcing (e.g., Tamil Nadu’s 30% requirement), with incentives tied to compliance.

Incorporate Small Modular Reactors (SMRs)- Include SMRs in India’s energy strategy as a low-carbon, reliable supplement to solar and wind, particularly for high-demand digital infrastructure. Their proximity to data hubs reduces transmission loss and increases energy security.

Grid resilience and forecasting- Proactively map and predict future energy demand to align infrastructure development with industrial growth and avoid future bottlenecks.

Adopt liquid and advanced cooling technologies- Transition away from energy- and water-intensive air-cooling systems in favour of liquid cooling or other efficient alternatives.

Reuse and recycle- Promote heat reuse systems where waste heat from data centers can be redirected for productive uses such as heating or industrial processes.

Mandatory environmental assessments- Require pre-construction Environmental Impact Assessments (EIAs) focused on water, energy, and local biodiversity.

Stakeholder engagement- Involve local communities, ecological experts, and urban planners in siting decisions to ensure local knowledge informs national policy.

Collaborative governance- Partner with state governments, regulatory bodies, and industry associations like NASSCOM to harmonize policies and accelerate implementation of green norms.

ESG reporting requirements- Mandate public disclosure of energy, water, and resource consumption to improve transparency and build public trust.

Performance-linked incentives- Provide financial incentives for data centers achieving high benchmarks in operational efficiency and sustainability (e.g., energy use, emissions, water reuse).

Invest in R&D- Support innovation in energy-efficient hardware, modular designs, raised-floor layouts, and AI-based resource optimization to drive continuous improvement in efficiency.

Energy concerns cannot be an afterthought in this entire process, but rather a necessary preliminary step to ensure that these new types of infrastructure remain green and sustainable. These suggestions might appear to increase bureaucratic hurdles, but in the long run, they will prove to be a win-win situation for all stakeholders involved. India stands at a pivotal moment and by learning from global experiences where rapid data center proliferation has led to local backlash over environmental and health concerns, India can plan smarter. Sustainability must be integral, not incidental, to digital infrastructure development. A green data economy is not just an environmental imperative but a competitive advantage in a climate-constrained world.