India’s digital infrastructure is experiencing a significant boom, with data centers proliferating to support cloud computing, AI workloads, and digital public infrastructure. However, this growth is colliding with the country’s unreliable power infrastructure, which is struggling to meet the increasing demand for electricity. Data centers consume electricity continuously and at scale, with AI-intensive data centers spending half of their electricity on compute alone and 25% on cooling systems.
According to a report by the Takshashila Institution, India’s data centers consume around 1 gigawatt (GW) of electricity, equivalent to powering 750,000 homes. Electricity costs are the single largest expense for data centers, accounting for 40-60% of total operating costs. The report highlights that India’s cost advantage in electricity costs 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.
The Indian government is promoting the use of renewable energy, with a target of 500 GW of installed capacity by 2030. However, the country still relies heavily on coal, which dominates electricity generation and makes data centers a major contributor to greenhouse gas emissions. The report recommends increasing tariffs for data centers to manage costs for other consumers, but this may deter investment in the sector due to higher operational expenses and slow down digital infrastructure growth.
The central grid has seen a significant increase in large renewable energy projects, but data centers in states with low renewable energy levels may consider switching grids. However, state-specific incentives may be unavailable for those connected to the central grid. The report notes that there is currently very little difference between state and central grids in terms of emissions, but the central grid offers greater redundancy and access to large renewable projects.
The report also highlights the importance of incentivizing clean power, enforcing efficiency norms, and planning grid upgrades, renewables, and storage around data center hubs. India’s climate goals are under pressure due to the surge in data centers, which risks amplifying local power and water stress. The report recommends that data centers 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.
The Indian government’s recent move to allow greater private participation in nuclear energy has sparked renewed hope, with nuclear offering stable, low-carbon baseload power. Big Tech companies are already considering going nuclear, signing long-term purchase agreements and supporting reactor restarts or small modular reactors (SMRs) to power data centers. India is also exploring SMRs, which could provide a scalable, safe, and suitable solution for decentralized energy solutions.
Overall, the report frames power infrastructure as the single biggest constraint on India’s data center ambitions. Without parallel investments in generation, transmission, and storage, the digital economy risks becoming energy-limited. However, India’s relatively low power costs, especially under captive renewable models, give it a structural advantage in attracting global investment in cloud and AI. The country must meet the moment and address the challenges posed by its growing data center industry to achieve its climate goals and support its digital economy.