Data Centre Power in India: Three Routes Under the Electricity Act 2003

The power ministry told Parliament on 27 July 2026 that data centres may add 26.3 GW of load to India’s national grid by FY32. India’s total operational data centre capacity as of June 2025 was 1.12 GW. The gap between current base and projected demand is not an engineering problem alone — it is a legal and regulatory one. Every gigawatt of data centre power requires a procurement arrangement that sits within the Electricity Act, 2003, and every procurement arrangement comes with a distinct legal architecture, a distinct risk profile, and a distinct timeline for execution. Investors and developers who have structured their transactions around the Finance Act, 2026 data centre tax exemption and the October 2022 DEA infrastructure designation now face a third problem that neither of those instruments addresses.

Key Takeaways

• Data centres may add 26.3 GW to India’s national grid by FY32, per the power ministry’s statement to Parliament on 27 July 2026 — against an operational base of 1.12 GW as of June 2025.
• Three power procurement routes exist under the Electricity Act, 2003: DISCOM supply (Section 43), open access from a third-party generator (Sections 42 and 49), and captive power generation (Section 9).
• Open access is the most cost-competitive route for large data centres. Open access rates for renewable energy through a long-term PPA typically run at ₹3.50–₹5.00 per unit, against commercial DISCOM tariffs of ₹8–₹11 per unit in Maharashtra and Karnataka.
• Open access for loads above 1 MW requires State Electricity Regulatory Commission (SERC) approval, a wheeling agreement with the DISCOM, and — for inter-state open access — a long-term access application to the CERC under the Grid Code.
• Captive power generation under Section 9 of the Electricity Act, 2003 allows a consumer to generate power for its own use without a generation licence, subject to CEA technical standards.
• Renewable Purchase Obligation under the Energy Conservation Act, 2022 requires large commercial and industrial consumers — including data centres — to source a prescribed percentage of energy from renewable sources.
• Gujarat’s power infrastructure (UGVCL/DGVCL, Kutch wind cluster, Narmada solar parks) and proximity to GIFT City make the Ahmedabad-Gandhinagar corridor a technically viable Tier 2 data centre location.
• The MeitY national data centre policy — consultations closed August 2025, unnotified as of August 2026 — proposed a single-window clearance replacing the existing 30-permission burden.

The Three Power Routes

DISCOM supply is the path of least legal resistance. Under Section 43 of the Electricity Act, 2003, every distribution licensee is obligated to supply electricity on request to premises within its area. The data centre applies to the DISCOM for a commercial connection, pays the applicable commercial tariff, and receives power on the DISCOM’s terms. For a small or medium data centre (under 5 MW), this is typically the starting route. For a large hyperscale facility, it creates two problems: capacity and cost. DISCOMs in Maharashtra and Karnataka — the two largest data centre states — are already capacity-constrained in the zones where data centre clusters are developing. And commercial tariffs, which cross-subsidise agricultural and domestic consumers in most states, are significantly higher than open access rates for industrial users.

Open access is the preferred route for large data centres. Sections 42 and 49 of the Electricity Act, 2003 allow a consumer with a connected load above the threshold set by the SERC (typically 1 MW) to procure power directly from a generator through the distribution or transmission network, paying wheeling charges and any applicable cross-subsidy surcharge to the DISCOM. The legal structure is a tripartite arrangement: a Power Purchase Agreement between the data centre and the generator (typically an Independent Power Producer or a renewable energy developer), a Wheeling Agreement with the DISCOM for use of its network, and (for inter-state open access) a long-term access application to the CERC under the Grid Code. At a 10 MW facility running at 85% utilisation over 20 years, the differential between open access renewable rates and commercial DISCOM tariffs runs into several hundred crore rupees. The legal and regulatory cost of establishing open access — SERC approval, DISCOM connectivity agreement, wheeling and banking arrangements — is recovered within the first two to three years.

Captive power generation under Section 9 of the Electricity Act, 2003 allows a consumer to generate power for its own use without a generation licence, subject to CEA technical standards. For a data centre, this typically means rooftop solar (limited capacity), a ground-mounted captive solar farm (requiring land acquisition and environmental clearance), or diesel/gas backup for reliability rather than primary supply. The Renewable Purchase Obligation framework under the Energy Conservation Act, 2022 requires large commercial and industrial consumers to source a prescribed percentage of their energy from renewable sources — for data centres, this is increasingly met through captive solar or through Renewable Energy Certificates purchased from the open market.

Route	Legal basis	Typical cost	Best for
DISCOM supply	Section 43, Electricity Act 2003	₹8–₹11/unit (commercial tariff)	< 5 MW; simplest legal path; no SERC approval
Open access (renewable PPA)	Sections 42 and 49, Electricity Act 2003	₹3.50–₹5.00/unit (open access rate)	Hyperscale and large DC; > 1 MW; most cost-efficient
Captive generation	Section 9, Electricity Act 2003	Variable; solar capex upfront	RPO compliance; backup and supplement

The Gujarat Opportunity

Gujarat’s power infrastructure has three characteristics that make it an attractive data centre location outside the established Mumbai-Chennai-Delhi clusters. First, UGVCL (Uttar Gujarat Vij Company Limited) and DGVCL (Dakshin Gujarat Vij Company Limited) coverage of the Ahmedabad-Gandhinagar-Surat corridor is reliable and expanding, with state government investment in substation capacity linked to the GIFT City and Dholera SIR development programmes. Second, Gujarat’s renewable energy base — 12 GW+ of installed wind and solar as of FY2025-26, with the Kutch wind cluster and Narmada solar parks — provides accessible renewable generation for open access PPAs within the state. Intra-state renewable open access for Gujarat-based data centres is cost-competitive; inter-state procurement is less so because of transmission charges. Third, Gujarat’s data centre policy offers land allocation and power tariff concessions for qualifying projects.

The GIFT City adjacency adds a further layer. Data centres within or immediately adjacent to GIFT City IFSC may qualify for IFSCA-linked incentives and for the DCEZ framework being designed under the draft national policy, potentially stacking IFSC tax benefits with data centre infrastructure incentives. For the tax exemption framework for hyperscalers using Indian data centres, see India’s Data Centre Tax Holiday Till 2047: What the Finance Act 2026 Means.

The 30-Permission Problem

The MeitY draft national data centre policy — first published in 2020, revised in consultation through August 2025, still unnotified as of August 2026 — proposed to replace the current approval burden with a single-window clearance mechanism. The 30 permissions currently required for a new data centre project span: change-of-land-use approvals, fire NOC, electrical inspector clearance, CEA technical standards compliance, structural certification, DISCOM connectivity agreement, open access SERC approval, water-use licence, environmental clearance (for large facilities under the EIA Notification, 2006), and state-specific consents. Clearing all 30 in sequence adds three to six months to a data centre project even where the developer is well-capitalised and well-advised.

Until the national policy is notified, the 30-permission framework applies. Developers should build this timeline into financial models, debt drawdown schedules, and hyperscaler anchor-tenant commitments. Pre-application engagement with the SERC on open access terms and with the DISCOM on connectivity is the most effective time-compression strategy available within the existing framework.

Looking Ahead

The national data centre policy will determine whether the single-window clearance genuinely collapses the approval process or merely coordinates above the same 30 permissions. Either way, the power problem persists beyond policy notification. The 26.3 GW of projected data centre load by FY32 requires transmission infrastructure — substations, high-voltage lines, transformers — that takes five to seven years to plan, fund, and build. States that move early on transmission investment, and that provide regulatory certainty for open access data centre procurement, will attract the investment that slower states will lose. The CERC’s proposed green energy open access regulations — under consultation in 2026 — will also determine whether renewable open access for data centres becomes materially simpler nationally, or whether the current state-by-state patchwork persists through the decade.

Frequently Asked Questions

What are the options for a data centre to procure power in India?
Three options exist under the Electricity Act, 2003: DISCOM supply (Section 43 — commercially expensive for large loads), open access from a third-party generator (Sections 42 and 49 — most cost-efficient for loads above 1 MW), and captive power generation (Section 9 — typically supplementary or renewable). Most hyperscale data centres in India use open access with a long-term renewable PPA as the primary supply.

Why is power a problem for Indian data centres?
The power ministry told Parliament on 27 July 2026 that data centres may add 26.3 GW to India’s national grid by FY32, against an operational base of 1.12 GW. Transmission infrastructure is not keeping pace. DISCOMs in the main data centre states are capacity-constrained. The legal approval process for open access adds 3–6 months to power procurement timelines even for well-prepared developers.

What is open access power procurement for a data centre?
Open access under Sections 42 and 49 of the Electricity Act, 2003 allows a consumer with a connected load above the SERC threshold (typically 1 MW) to procure power directly from a generator, using the distribution or transmission network for delivery by paying wheeling and banking charges. For data centres, this typically means a long-term PPA with a renewable IPP at rates 40–50% below commercial DISCOM tariffs.

What renewable energy obligations apply to data centres in India?
Data centres are subject to the Renewable Purchase Obligation framework under the Energy Conservation Act, 2022, requiring large consumers to source a prescribed percentage of energy from renewable sources. This is typically met through open access renewable PPAs, captive solar generation, or purchase of Renewable Energy Certificates from the open market.

What would the MeitY national data centre policy change for power procurement?
The draft policy proposed a single-window clearance replacing the current 30-permission framework, which would compress project timelines by 3–6 months. The policy has not been notified as of August 2026. Until notification, the existing permission burden applies.

Why is Gujarat attractive for data centre power procurement?
Gujarat has 12 GW+ of installed wind and solar capacity, reliable UGVCL and DGVCL distribution infrastructure expanding toward the GIFT City and Dholera SIR corridors, and intra-state renewable open access rates that are cost-competitive with other major data centre states. Land and power costs in the Ahmedabad-Gandhinagar corridor are lower than in Navi Mumbai or the Outer Ring Road cluster in Hyderabad.

Speak to Candour Legal’s Energy and Infrastructure Team

Candour Legal advises data centre developers, operators, and investors on open access applications before the SERC, PPA structuring with renewable IPPs, captive generation approvals, DISCOM connectivity disputes, and the interaction between the Electricity Act, 2003 framework and India’s data centre tax and infrastructure incentive regime.

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About the author

Manasvi Thapar, Advocate at Candour Legal, advises on energy regulatory matters, infrastructure investment, and commercial litigation. Schedule a call with Manasvi.

Candour Legal is a full-service Indian law firm with offices in Ahmedabad, Mumbai, and New Delhi. More on our Energy and Infrastructure practice.

Further reading

• India’s Data Centre Tax Holiday Till 2047: What the Finance Act 2026 Means for Investors and Operators
• GIFT City Category III AIF: The Route That Is Replacing Mauritius for F&O Traders
• IBC Section 14 Moratorium Does Not Shield Promoters or Directors: Supreme Court