Tarluvada is one place to start.

Thirty kilometres to the north of Visakhapatnam, this village is an upcoming node in India’s data centre push. One of the three data centres Google is setting up near this coastal city will be sited here. The other two are sited to the south. Adavivaram lies just to the west of Visakhapatnam, or Vizag, as it is also known. As for Rambilli, it lies another 50 kilometres to the south, very close to the coast.

Between them, these three data centres will house 2.5GW of computing capacity (Data centre capacity is measured in MW/GW because the sector considers power availability its ultimate constraint on operations). To put that number in perspective, India’s installed data centre capacity in 2025 was 2.2GW. Google, however, is just the start. Reliance too is setting up a 1GW data centre at Polipalli village, 20 kilometres to the northeast of Tarluvada. At least two more data centres, one by RMZ-Colt Data Centres (1.25GW) and the other by Sify (50MW, expandable to 500MW), are coming up here.

In all, the district of Visakhapatnam might soon host as much as 6GW of data centre capacity. It’s not the only one. A clutch of other cities — some close to the coast like Mumbai and Chennai; and the others deeper inland, like Hyderabad, Bangalore, Naya Raipur, Greater Noida and Bhopal — are vying for them too.

As new data centres get announced seemingly every other day, projections of India’s data centre capacity are rising fast. Just last year, India was expected to touch an installed capacity of 4.5-6.5 GW by 2030. Firms like Wood MacKenzie now expect that number to cross 12 GW. Others peg this number higher yet. Take India’s Ministry of Power. Its estimates for power demand from data centres by 2031-32 go as high as 26.3GW.

What does one make of this expansion? Elsewhere in the world, countries have seen power costs spike once data centres took root. Ireland is one instance. India, however, is much larger. Given its installed power generation capacity of 520 GW — which is slated to rise to 777 GW by 2030 — do data centres constitute a strain on the grid? Similarly, what about water? As this report will show below, the quantum of water used by data centres is indeed dwarfed by what India uses on agriculture.

And so, earlier this year, CarbonCopy decided to take a closer look at India’s data centre buildout. Worldover, data centres have faced much local opposition. Today, as India embarks on its own data centre push, is it protecting itself against the risks and externalities voiced by people in other countries?

Given the heterodox nature of concerns around data centres — power, water, heat island effects, sound, etc — we focused on power supply.

Here is what we found.

The entry of the gatekeepers

For starters, data centres are not new to India.

They have been around from the early nineties when firms like Rediff and VSNL began offering hosting services and the Reserve Bank of India began pushing core banking, forcing banks to create central servers with account holders’ information.

In recent years, though, the market has gotten hotter. As AI gathers users, hyperscalers, social media giants and AI firms are beefing up data centre capacities to meet demand and boost valuations. Given constraints like grid capacity, water availability and local opposition, they are expanding to developing countries where power is cheaper, and land/water can be more easily procured.

Within India too, a clutch of factors are boosting data centre growth. The push for data localisation is one reason. Another is the rising use of AI not just by companies but also by the country’s union and state governments. The war in the Persian gulf, which saw Iran bomb data centres in Bahrain and elsewhere, has helped as well — as have the financial incentives rolled out by India’s centre and state governments.

“Data centres are projected to generate anywhere between 12%-23% as RoI,” an executive at a Delhi-based AI firm told CarbonCopy on the condition of anonymity. “And so, both international firms like KKR and Blackstone and local firms like Adani and Hiranandani are coming in.”

Who Is Building Data Centres in India (1)

Along the way, though, India’s data centre market is seeing something odd.

As the chart above shows, most firms coming in from overseas are neither setting up their own facilities nor tying up with local data centre operators. Instead, they are tying up with relative newcomers. Google, for instance, has tied up with Adani; Meta with Reliance; and Colt with RMZ.

For anyone trying to understand how India’s data centre buildout will affect the country’s energy systems, this is one place to start.

The global data centre market is shifting towards larger scale. “(Facility sizes) are increasingly in the hundreds of megawatts, and in some cases approach gigawatt-scale campus formats,” said Anshuman Magazine of CBRE, a commercial real estate firm. With that, however, it gets harder to find enough land, water and power. And so, global firms are choosing local partners who can secure these.

“Traditional operators have built their strengths around uptime reliability, enterprise relationships, operational expertise and managing mission-critical environments, capabilities that remain highly relevant, particularly for latency-sensitive and compliance-driven workloads,” explained Magazine. “Infrastructure-backed platforms are better positioned to develop large integrated campuses with stronger control over land acquisition, utility provisioning and long-term power sourcing… The complexity and cost of building captive facilities at meaningful scale, securing land, power, approvals and cooling simultaneously, is making leasing from specialised operators the more rational choice for most enterprises and even some hyperscalers.”

This turn is significant for two reasons. First, it shows that, even with the global AI boom, India is little more than a raw input supplier. Second, as foreign firms tie up with influential local partners, India’s data centre market is splitting into two halves: Powerful newcomers who can secure land, power and water; and traditional operators with technical expertise. “Pureplays will have about 30% of the market,” said the head of a leading Bangalore-based data centre firm on the condition of anonymity. “There will be about a hundred of us. And then, there will be about ten large companies. They will tie up with hyperscalers like Amazon and Google.”

Along the way, India’s data centre market is cleaving into two. While the first camp builds GW-scale facilities, pureplays are sticking with smaller units, no more than 100 MW in size.

How both source power is very different.

Hundred MegaWatt vs One GigaWatt?

Over the last fifteen years, the head of the Bangalore-based data centre firm has seen the profile of firms in his sector change. The old days of IT hardware management have yielded to the co-location model where Indian partners secure land, water and power and tenants bring in the technology they want.

In our conversation, CarbonCopy asked how data centres, like his, source electricity. “India can easily host multiple 100MW data centres,” he said. “The grid can support these.” In his emailed interaction with CarbonCopy, Magazine too had concurred. “For facilities in this range, power is primarily sourced through state electricity grids supported by long-term utility agreements, diesel backup systems and an increasing integration of renewable energy via power purchase agreements.”

Turn to GW-scale facilities and the question gets more complicated. “1GW is hard,” said the Bangalore-based data centre head. “You will need to revamp the grid. Also, you will not get 1GW from a single generator. Which means large data centres have to mix and match from multiple generators. In addition, you are talking about something that needs 1 GWH all through the day. Which means that you need multiple GWs as capacity. If a data centre is running on just solar, it will need to set 5 GW to offset solar’s low efficiency. You will need storage as well.”

States are responding to this complexity in two ways.

Andhra Pradesh has allowed data centres to bypass the grid. It has, for instance, granted a discom license to the Adani-Google data centre at Vizag. “The licence will allow Google to directly procure and distribute electricity for its operations, marking a shift for the company from being a large power consumer to managing its own energy supply,” reported Economic Times. “This is significant as data centres are power and water guzzlers and electricity accounts for a substantial share of operating costs. It is expected to deliver both cost efficiencies and tighter control over power reliability.”

Uttar Pradesh is moving down the same path. Its UP Data Centre Policy Draft 2026 contains a provision to extend licenses for power distribution to data centres.

Other states, like Telangana and Tamil Nadu, have taken a different tack. They have kept data centres within their discoms and offer dual power — power from two different locations/providers — to data centres as a hedge against power failure.

Both choices come with large trade-offs.

Discom vs Deemed Discom?

Andhra is not the first to decouple data centres from discoms.

In the US too, once allowed to delink from power grids, data centres have been sourcing their own power. Microsoft, famously, decided to source power for its data centres from the re-opened nuclear plant at Three Mile Island. Others, belying previous commitments about staying green, fell back on coal and natural gas. This includes Google, Meta, Amazon and Microsoft.

This trend is not limited to the US. Japan too, as Magazine said, is “using gas cogeneration systems to support power resilience at scale.”

This is the first question. When a GW-scale data centre in India gets off the grid, who will it source power from? “The economics of renewables in India remain favourable compared to gas or nuclear at this stage,” said Magazine. “That said, as AI infrastructure scales to gigawatt levels, energy security and 24/7 reliability will become increasingly important considerations. The conversation around dispatchable power, whether gas, pumped hydro or eventually nuclear, will intensify in India as it has elsewhere.”

As things stand, India’s data centre boom is taking shape at a time when both renewable and fossil fuel generators are struggling with low capacity utilisation. “Power companies are happy with this boom because discoms were not signing PPAs,” a senior executive in the BESS space told CarbonCopy on the condition of anonymity. “Data centres, on the other hand, are bankable customers.”

This, however, means data centres can choose between existing solar projects unable to sign PPAs, stranded gas projects, and thermal power plants with low capacity utilisation. With the latter two, India’s emissions will rise. Recent market developments suggest the economic argument in favour of renewables is not emphatic enough. While Ctrl-S has tied up with NTPC Green Energy for renewable power, Maharashtra has reduced the clean energy requirement for data centres to 51 percent.

The other option, where data centres set up their own “behind-the-meter” power plants (as in the USA), comes with its own questions. If a data centre wants to set up a pumped storage project in a forest, would that qualify as public purpose?

Or take emissions, again. To power its 933-MW data centre at Armstrong Country in Texas, Google opted for Natural Gas. “The power plant would emit as much as 4.5m tons of carbon dioxide,” The Guardian wrote. “For comparison, the entire city of San Francisco emits about 4m tons of carbon dioxide annually.”

In India, such arrangements will create an outcome where, as digital rights activist Srinivas Kodali told CarbonCopy, global data centres will not only capture cheap land, power and water but also benefit from India’s low per capita emissions — a number India has used to defend its need to pollute for faster development.

The other approach — that of Telangana and Tamil Nadu — comes with its own questions. Telangana, for instance, has promised to exempt data centres from load-shedding. This, however, creates an outcome where power shortages will fall on other users, the very fear protestors are voicing.

Or take Ireland. Data centres now consume 22% of the island nation's electricity. Given their rising demand for power, Ireland has had to fall back on costlier forms of power like Gas. With that, as The Guardian wrote, data centres drained “€715m (£620m) from the Irish economy and increased household bills by a cumulative average of €360 between 2015 and 2023.” These numbers might rise further, it cited from a report by Friends Of The Earth. “Depending on data centre growth, the average Irish household could pay a further €295 to €644 cumulatively from 2025 to 2034.”

In response, Ireland has told data centres to source their own power — and added a rider that 80% of their electricity must come from renewable sources.

These are lessons India has not learnt. Data centres have high running costs — mostly due to their energy consumption for computing and cooling. While wooing them, ergo, a clutch of state governments have offered exemptions on electricity duty, wheeling charges and transmission charges. Telangana promises electricity “at the cost of generation” and Odisha, “30% subsidy on power bills for 5 years”. Andhra has offered both Google and Reliance a discount of Rs 1/unit for 15 years. In the case of Reliance alone, this discount can be as much as Rs 3,114 crore.

Large questions lie here. “Discoms will have to invest in new power lines,” said the senior official in the BESS space. These will also have to pay for their running costs, transmission charges and so on. “All those costs will get socialised,” he said. “That will be the utility death spiral.”

Yet all these investments ultimately hinge on one unresolved question: how much computing capacity will India actually need?

Large Language Models vs Small Language Models?

The elephant in this room, as we chat about projected data centre capacity and how to meet the sector’s power requirements, is market speculation. Not just in global AI valuations but also in India’s data centre announcements.

It shows up in hyperbole — like the one which says India will become a "global digital infrastructure hub" without specifying what this means. It shows up because neophytes are rushing in. It shows up, as the data centre head in Bangalore said, in projections by even established firms that are far higher than the GPUs they have. And it shows up in the mushrooming of data centres in the unlikeliest of places — like water-stressed and heat-prone Raipur. (One reason data centres flocked to Ireland was low temperatures).

And so, working on this report, CarbonCopy asked firms about actual demand for data centres. This is partly about data and partly about AI.

The first of these, data, doesn’t seem like much of a problem. “Ninety percent of the data Indians use is being serviced from outside the country,” said the Bangalore-based data centre head. “This includes social media and OTT. It’s more appropriate to service that demand locally.” In addition, Indian firms are re-shoring data to local servers as well. “All these companies have seen what happened to Nayara,” he said. “Microsoft just removed their IT access.” In addition, as he said, US acts like FISA (Foreign Intelligence Surveillance Act) and the Cloud Act (Clarifying Lawful Overseas Use of Data Act) can also be used to claim Indian companies’ data. For this reason too, data is re-shoring.

More than data, though, AI is what will demand energy and computing capacities at data centres. “My cloud consumes 10 KW/rack,” the Bangalore-based data centre head told CarbonCopy that afternoon. “AI consumes 130 KW/rack.”

This is where things get complicated. On one hand, demand for AI is yet meaningfully pick up in India. “We have not seen massive AI need so far,” said an IT sector observer on the condition of anonymity. “We have spoken so much about Smart Cities and Smart Grids but there is little demand yet. The only AI use-case right now is undressing ladies on Twitter.” Indeed, India is witnessing a rise in AI-facilitated gender-based violence, including deepfakes and other forms of image-based abuse, even as regulators struggle to keep pace.

When asked about demand, the data centre head said the Indian government is the biggest user of AI data centres right now. “It’s using AI to update welfare beneficiary rolls, etc,” he said, and added this would change in a couple of years once local language models come up. “Imagine how easy ticket booking will be once travel portals can accept voice bookings in 22 languages! We have 140 crore people. Even if each calls once a day, that will consume 4-5 GW of capacity.”

The variable here is technology. Large Language Models (LLMs), like the ones developed by OpenAI and Anthropic, are tussling for dominance with Small Language Models (SLMs) like China’s DeepSeek and Kimi3 which need less computing power (and ergo, lesser energy). Between the Trump administration’s decision to restrict access to the country's latest AI models and Indian IT firms getting worried about runaway expenditure on AI tokens and switching, ergo, to smaller models, it remains to be seen how demand for “compute” will evolve.

For now, firms are staying cautious. “People might be announcing a 100MW capacity,” said the executive at the Delhi-based AI firm. “But what they are building is 10MW. Only when this demand is saturated will they build more.”

Energy company vs Real Estate Play?

If demand stays low, the market will slip into intensified competition.

And here, a fresh wrinkle over competitive advantage rears its head. For over a decade now, India’s power sector has been re-bundling.

The largest player in the sector — Adani — has expanded horizontally to span solar and thermal power generation. In both, it has also integrated backwards. The group has its own manufacturing lines for solar panels. In coal, it owns coal-mines and does its own mining. It also owns transmission lines and discoms. A clutch of other firms — like Greenko — have rebundled as well. It now spans solar, hydel, wind and pumped storage projects.

As this essay noted above, the data centre market is characterised by high capital expenditure and high operating costs (mainly on power for computing and cooling). Given their technical expertise, traditional operators have a competitive advantage. It’s unclear, though, whether co-location players (who supply land, water and power) like Yotta can compete with firms like Adani and Greenko with access to their own power projects? CarbonCopy reached out to Yotta while working on this report. There was no reply.

This is a question that discoms have to keep in mind. Otherwise, they might be saddled with infructuous investments. The firms themselves might be fine, though. Even if the projected boom doesn’t materialise, they will still have these large parcels of land and concessions over water and power.

As in power, so with water

As things stand, the unfolding interaction between data centres and India’s energy grid is a synecdoche.

In Uttar Pradesh, even as data centres get 24x7 water, locals are contending with water shortages. Groundwater levels are collapsing. And residents are relying increasingly on tankers.

More than power, the real constraint on data centres’ growth in India lies in water. New PPAs can always be signed. Fresh feeder lines can always be laid. Finding water is harder. Here too, though, aggregate numbers suggest there won’t be a problem.

Cooling a 100‑MW facility can take 2 million litres of water per day. Even assuming none of this water is recycled and non-water based cooling options aren’t used, that works out to 730 million litres of water a year. Or 7.3 million litres per MW. Or 191.99 billion litres for 26.3 GW of data centre capacity. In contrast, Indian agriculture uses 898.4 billion cubic metres of water — the rest goes to industries and households. With one cubic metre translating to 1,000 litres, the demand from AI for water is a fraction of India’s water demand.

Such calculations, however, are incorrect. Water availability varies per region and season. Visakhapatnam faces water shortages. So do villages abutting Naya Raipur. Even Mumbai, which has the biggest agglomeration of data centres in India, had a scare this June when water level in its lakes fell below 7% of reservoir capacity. Compounding matters, a clutch of other processes — like climate change and rampant deforestation — are also changing the hydrology of this country.

India is not paying attention to these trends. In large part because, as this report shows, data centre majors entering India have aligned themselves with the country’s political economy. With that, questions about ecology and equity are not getting considered. Take Tarluvada, Adavivaram and Rambilla. The first two lie within touching distance of the Kambalakonda Wildlife Sanctuary, a home to leopards. Tarluvada is just 1.53 kilometres away. On Google Maps, Adavivaram seems to almost nestle inside the forest. Rambilli too, as Frontline reported, is surrounded by six reserve forests, the closest of these just 1.3 kilometres away.

Not only are these concerns getting ignored, both India’s union and state governments are extending subsidies to a sector which will create few jobs, lesser tax revenues and do little to help India move up the ladder in AI.

The NDA has granted foreign cloud operators using India for global operations a tax holiday till 2047 – another illustration that India’s power and water will be used to solve AI queries elsewhere in the world – and state governments have doled out their own concessions. As for states, consider Andhra. It has extended incentives worth Rs 22,000 crore to the Google-Adani data centres — and another Rs 19,000 crore to Reliance. Apart from these, it has to also invest in the Polavaram Left Bank Canal to get Godavari water to Visakhapatnam — and then to push this water to each of the data centres. As with electricity, these costs will be socialised as well.

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