India’s $1 trillion digital boom: A data-driven resource crunch?

India’s growing embrace of all things digital has gifted the country everything from the convenience of mobile payments to online health cards, but industry insiders say it’s also fuelling a rush on energy-intensive data centres that drain critical power and water resources.

In the three years to 2022, the amount of electricity required by India’s data centres more than doubled to 722 megawatts, according to commercial property services company JLL India – momentum that’s unlikely to slow as policymakers aim to build a US$1 trillion digital economy by 2026.

“India’s data centre industry is set to witness continued growth,” said Rachit Mohan, JLL India’s data centre advisory head, who forecast that by 2025 its expansion would require an additional 9.1 million square feet (85 hectares) of land worth some US$4.8 billion.

Data centres are networked facilities whose servers, storage systems and computing infrastructure enable organisations to process, store and disseminate large amounts of data: the hi-tech fuel of the modern economy.

But as these centres increasingly crop up in Mumbai, Bangalore and India’s other major metro areas to be close to the end consumers, it’s putting growing pressure on the power and water infrastructure that they require in abundance.

Mohan added that both existing data-centre operators, as well as new entrants to the sector, were adopting the practice of “land banking” – or buying land as an investment and holding it for future use without specific plans for its development – in a bid to set up new facilities.

The sheer amount of power that these data centres consume – as well as the vast quantities of water they require for cooling – has attracted much scrutiny globally of how their environmental impact can be mitigated.

Often, this scrutiny comes in the form of calls from shareholders for the data-centre operators to step up energy efficiency and increase their use of renewables, said Vinay Rustagi, CEO of Bridge to India, a renewable-energy consultancy.

He said data centres had the capacity to become carbon neutral “but there is a lot of resistance” to the prospect of making renewable power available to them from the country’s state-run power distribution companies.

Power distribution policies vary from state to state, but throughout India energy suppliers must always balance the needs of households with those of private industry.

Data centres, meanwhile, may find themselves relying on filthy fossil fuels unless they identify options for purchasing renewable power at an early stage of development.

“If they [data centres] don’t have reliable power backup, then they have to be running on diesel generators [if there is an outage] and that is highly polluting. I understand that 40-50 per cent of the cost of a data centre comes only from power consumption,” Rustagi said.

For many, the only way they can power their centres using renewables is to directly approach green-energy producers rather than the state-run distribution companies – “a cumbersome process which requires multiple approvals,” Rustagi said.

“It would be desirable for the government to come up with a specific renewable energy policy for data centres,” he added.

A Singapore-style solution?
India is not alone when it comes to striking a balance between the needs of its digital economy and reducing its carbon footprint.

Singapore imposed a moratorium on new data centres in 2019 as it reviewed its policies, only lifting the ban in January last year subject to conditions on energy efficiency and sustainability.

“Data centres are very central to the digitalisation of the Indian economy and the government is trying to promote their development,” Rustagi said. “I don’t think restricting data centres growth or their location is the answer.”

Compared to Singapore, India is behind the digital-development curve, analysts say, and New Delhi cannot afford to impose similar curbs.

India has about 20 active data centres operators who have acquired more than 350 acres of land for development and operations over the last three to four years, according to Mumbai-based investment banking advisory firm Anarock Capital.

“Some of these are already under development with planned supply coming up over the next two to three years,” said Anarock Capital’s president of industrial logistics and data centres, Devi Shankar. “And some of these land parcels are banked for future scalability.”

But the industry is staring at a supply crunch as demand has soared on the back of an explosion in cloud-based businesses, the need for extra storage to comply with data privacy laws and the roll-out of a nationwide 5G network.

“In India, the demand is absolutely massive, and supply is currently very, very low, so the development of data centres is a huge growth market,” said Jake Robson, a partner at regional law firm King & Wood Mallesons whose focus is South and Southeast Asia and whose experience spans resources and commodities.

Much of the development is coming from data-centre operators who had snapped up tracts of land in anticipation of a spike in demand, as well as the big tech companies. Developers of smaller “edge data centres”, as they’re known in the industry, from a lower third tier.

But amid the growing pressures to find suitable land, technology companies “will focus increasingly on edge data centres which they can design, manufacture and roll out in large numbers to create integrated networks across regions and cities,” Robson said.

The individual units of networked data centres such as these can be installed quickly and cheaply on rooftops, in car parks and in other areas where space is limited, he added. South China Morning Post