Only green energy will sustain data centres

By Prashanth Sabeshan, Dentons Link Legal
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Data centres are dedicated secure spaces where computing and networking equipment collects, stores, processes, distributes and provides access to large amounts of data. Most companies have data centres, either onsite or use the servers of third-party providers, allowing customers to access their services.

India is the world’s 13th largest data centre market, with 138 such facilities. Some 45 new data centres with a combined area of 13 million square feet and 1,015MW of demand are scheduled to open by the end of 2025. The need for additional data centre infrastructure also comes from the data localisation provisions of the Digital Personal Data Protection Act, 2023. The legislation, which distinguishes between data fiduciaries and data processors, will require significant investment in data centres for these entities to do business.

Prashanth Sabeshan, Dentons Link Legal
Prashanth Sabeshan
Partner
Dentons Link Legal

Data centres require substantial supplies of energy, including dense charging infrastructures and grid-scale energy storage systems delivering at least 200MW/hr. Absent is a regulatory regime in India imposing significant green energy usage in data centre operations except for renewable purchase obligations, so significant incentives are needed. These include tariff concessions and reimbursements, the availability of renewable energy through open access systems and the provision of robust backup power systems from batteries and generators. In-area captive power plants should be built and in-rack liquid cooling installed to replace inefficient air cooling. All these should be built and provided in a climate-friendly manner.

The lack of adequate power supplies is challenging. Delivery is unreliable and power outages common. The considerable energy demand is an opportunity for green energy projects. However, they will have to be power generators, in-area captive power plants, backup generators supplying data centre systems and servers around the clock and the large-scale cooling systems will be required.

Regulatory uncertainty regarding the proposed Indian Carbon Market and its trading system is a significant disincentive. Building in-area captive power plants is hindered by the absence of land subsidies and the investment-related requirement that each captive user holds 26% of equity in the power plant.

However, individual states have taken action. Karnataka has concessions making data centres eligible for industrial power tariffs instead of commercial power tariffs if 30% of the centres’ energy use is green. Data centres drawing more than 50% of their energy use from renewable sources will be reimbursed the INR0.50 surcharge per unit for five years and will be eligible for green power tariff reimbursement of up to 5MW, capped at INR1.25 billion (USD15 million). Data centres are also exempted from all electricity duties and taxes for five years.

In Tamil Nadu, incentives are granted where at least 30% of energy needs are fulfilled by renewable power sources. Centres are entitled to a 100% subsidy on electricity duties and taxes for five years from the start of commercial operation on power purchased from the Tamil Nadu Generation and Distribution Corporation or generated and consumed from captive sources.

Telangana allows 60% of the conventional cross-subsidy charge for wind energy and 70% of the conventional charge for solar energy for data centre power consumption. Maharashtra has a power tariff subsidy of INR1 per unit for five years for certain new data centre units. Developers or operators are eligible for licences for green energy distribution and consumption within data centre parks. Data centres can use open access.

Haryana has announced a 100% exemption from electricity duties and taxes for captive consumption and power sourced from the grid for 20 years from the start of commercial operations at a data centre.

In October 2022, data centres have been granted “infrastructure status” enabling them to obtain long-term credit from domestic and foreign investors.

Data centres and energy consumption are closely interconnected. If supply issues are not solved, India’s data centre ambitions will not be achieved. Given the country’s climate change commitments, an active clean energy consumption and trading regime must be available. The march towards net-zero India cannot allow data centres to be energy guzzlers.

Prashanth Sabeshan is a partner at Dentons Link Legal.

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