As India’s digital economy evolves, hyperscale cloud providers, AI adoption, and rapid digitalisation are fuelling the growth. Yet, the sector faces a challenge: electricity needs.
Electricity demand is expected to rise by 60% by 2030, according to the Council on Energy, Environment and Water. To meet this, industry players are exploring natural gas as an option for round-the-clock supply.
Globally, gas is often called a “bridge fuel,” cleaner than coal or diesel, while still reliable. India is now testing this idea. Gas-powered data centres have been gaining attention as operators look for lower-carbon alternatives.
The Boom Behind Gas
A report in The Economic Times revealed that policymakers and industry groups are actively considering gas-based power plants for data centres. State utilities and private developers are reportedly assessing whether gas could support upcoming hyperscale facilities in metros like Mumbai, Hyderabad, and Delhi NCR.
Mumbai, which hosts the bulk of India’s existing data centre capacity, seems the most likely candidate to explore this alternative. Proximity to LNG import terminals and industrial gas infrastructure makes it better placed than land-locked cities such as Hyderabad.
“While there is no clear indication yet, regions with a high concentration of data centres, such as Mumbai, may be more likely to explore gas-based power as an option,” Hanumanth Raju, senior associate at the Center for Study of Science, Technology and Policy (CSTEP), told AIM.
Are Renewables Cheaper?
Cost turns out to be the biggest hurdle in the transition to gas in India. According to the Institute for Energy Economics and Financial Analysis (IEEFA), firm renewable energy (RE) prices in India average ₹4.98-₹ 4.99 per kWh, which is below the median gas tariff of ₹5.4.
Rishik Teepireddi, vice-president of business strategy and renewable energy at CtrlS Datacenters, told AIM, “Gas may be a short-term solution to address gaps in the RTC energy supply. India boasts abundant solar, wind, and hydro power, and has already achieved roughly 50% of non-fossil installed power capacity ahead of its 2030 target.”
Nonetheless, the weighted average power cost of gas-based plants is significantly higher than almost all other sources (except diesel), said Raju. “For instance, tariffs have risen from ₹4.72 per unit in FY2016 to ₹7.17 per unit in FY2024. Given that data centres require a stable and reliable supply of affordable power, long-term power purchase agreements from gas plants may not be the most suitable option,” he added.
This puts India at odds with global narratives where gas is positioned as a competitive bridge. In India, solar, wind, and battery storage are already more affordable.
Infrastructure Bottlenecks
Even if operators were willing to bear the cost premium, India’s gas pipeline and plant infrastructure is inadequate. Locating gas plants near urban data centre hubs is difficult due to land scarcity and transmission challenges, explained Raju, adding that respective state governments need to actively facilitate land allocation for this purpose.
“Power evacuation from these plants requires careful transmission planning, and the addition of new substations within dense city limits is a complex, cumbersome task,” he said.
Mumbai might emerge as an early test bed, but scaling gas-powered data centres nationwide would be an uphill task.
“Renewables plus storage and flexible clean generation are more sustainable long-term solutions than investing in substantial gas infrastructure, which faces supply, cost, and policy risk in the Indian subcontinent, ” Teepireddi added.
Use Cases and Emerging Plans
According to ITPro, data centre operators globally are adopting onsite gas generation systems as a way to ensure reliability during grid stress. In India, similar conversations are underway.
Several companies in India are focusing on cleaner energy solutions and infrastructure investments for data centres. Nxtra by Airtel, in collaboration with Bloom Energy, is employing advanced fuel cell technology powered by natural gas, and eventually, hydrogen to provide cleaner energy for its data centres.
The Indian Oil Corporation Limited has expressed interest in entering the data centre market. Global players like GE Vernova and Siemens Energy are also eying the opportunity, with GE Vernova offering gas turbines like the LM2500XPRESS for efficient backup energy, especially for AI workloads. Siemens Energy provides a variety of solutions for power generation and grid stability.
Furthermore, Ursa Clusters recently announced plans for a 100-MW data centre in Hyderabad, backed by a memorandum of understanding with the Telangana government.
Blackstone is constructing a 150-MW facility after acquiring a natural gas-fired power plant in Virginia, and Tillman Global Holdings plans a significant 300-MW data centre.
While no large gas-powered data centre project has broken ground in India yet, these plans reflect serious deliberation.
Policy Vacuum and Climate Trade-Offs
India currently has no policy framework that promotes gas-powered data centres. Instead, the government’s Data Centre Policy 2020 and subsequent drafts emphasise renewable energy integration.
IEEFA argues that adopting gas could be a misstep in India’s net-zero journey. “Natural gas is not a transition fuel for India’s data centres, it’s an expensive, volatile import that will expose operators to risks,” the think tank warned.
Raju echoed this view: “Renewable energy coupled with storage clearly holds an advantage, both environmentally and economically. Data centres can increasingly rely on firm and dispatchable renewable energy (FDRE), which already offers tariffs approaching those of standalone RE projects.”
From a climate lens, the methane leakage associated with gas supply chains further erodes its “clean fuel” reputation. Hyperscalers like AWS and Google, which have pledged 100% renewable energy commitments, may struggle to justify their gas usage in India operations.
The Transition Argument
Still, some argue for pragmatism. India’s data centre capacity is expected to grow from 1.3 GW in 2024 to about 5 GW by 2030, nearly a fourfold increase, fueled by AI, cloud computing, and data localisation policies. If renewable and storage capacity lags, gas could mend the gap for short-term.
Raju conceded this: “If demand accelerates steeply in the near term, procuring electricity from existing gas-based plants may serve as a feasible stopgap for meeting peak demand, given their high flexibility and fast ramping capabilities.”
But investing in new gas plants solely for this purpose would not be an ideal long-term strategy, he added.
This suggests gas may provide transitional backup solutions, but not the mainstream source of energy.
Gas offers quick ramping and relative emissions benefits over coal and diesel, but is costlier, less sustainable, and infrastructure-constrained. Mumbai may pilot hybrid or backup gas solutions, but a deeper enquiry points toward renewables + storage as the ultimate answer.
The critical question now is whether Indian data centres will use gas, and for how long? If renewables and storage scale fast enough, the window for gas could close before it even opens.
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