The use of artificial intelligence (AI) is driving demand for data centers, which in turn is whipping up demand for electricity. A recent report of the International Energy Agency has noted that AI adoption rates rose from slightly over 15% of firms using AI in 2020 to almost 40% in 2024.
Data centres account for around 9 TWh of power consumption in India, or about 0.5% of total consumption, the report notes, adding that the sector “appears poised for rapid growth.”
A conventional data centre might have a power capacity of about 10-25 MW, while a hyperscale, AI-focused one can have a capacity of 100 MW or more with its annual electricity consumption equivalent to that of 100,000 households.
India stands to benefit in its pursuit of AI prowess, with the value of IT exports steadily growing to over $200 billion in 2024. By comparison, the world’s largest oil exporter earned $220 billion in export revenues that year.
Demand for data and computing in India is driven by its about 950 million Internet users. Data localisation requirements in some sectors are nudging up data centre capacity.
In June 2024, the country had 2 GW of total installed data centre capacity in operation, using electricity equivalent to that by 6.5 million Indian households. India’s capacity has doubled in only four years. More than 2 GW of capacity is in the pipeline and will see light of day over the next two years. By 2030, estimates show that Indian will have installed capacity of close to 5 GW.
The government’s IndiaAI Mission, with a $1.2 billion budget aims to develop an AI computing ecosystem with over 18,000 GPUs to support AI start-ups and research. In addition, there are incentives from State governments for data centres. For example, Uttar Pradesh has announced 100% exemption on electricity duty and transmission charges for ten years for new data centres.
Data centres are boosting India’s electricity demand growth at a time when India is already among the world’s fastest-growing electricity markets. Coal accounts for 74% of electricity generation in India today, providing much of the reliable power to the grid, and the dominance of coal in the mix is likely to continue beyond 2030.
However, companies may directly purchase of power from generators. For example, Bharti Airtel, which said it would procure 140 GWh of renewable energy annually, has been working with generation companies to buy green power for their data centres.
To ensure that the upcoming wave of new data centre construction remains on target, the IEA says India will need to address long-standing issues of grid reliability. “Backup and captive power generation for data centres remain critical considerations owing to the risk of power supply interruptions from the grid.”
Efficiency gains from AI
While AI can send demand for energy shooting up, the technology can also help make the sector more efficient. According to the IEA, “AI-enabled fault detection can cut grid outage times by 30-50%, and smart AI can unlock 175 GW of transmission capacity without new lines. In buildings and transport, AI could enable 300 TWh in electricity savings and reduce vehicle energy use equivalent to 120 million cars.”