Telangana’s Data-Centre Push Faces Power, Water Test

Hyderabad:Telangana's plans to attract 8–10 GW of data centre investment face challenges from rising electricity demand and a projected water shortage, even as the state ranks among India's most attractive destinations for data centre investments.

In the wake of higher than normal temperature caused by the El Nino weather phenomenon, the state recorded an all-time peak power demand of 19,543 MW last month, a 23 per cent increase over the corresponding day last year. Within Greater Hyderabad Municipal Corporation (GHMC) limits, peak power demand reached 4,782 MW last summer and is projected to cross 5,000 MW next summer.

The growing demand for electricity, coupled with Hyderabad's projected domestic and industrial water shortfall of 240 million gallons per day (MGD) by 2027–28, has raised concerns over the availability of reliable power and water for cooling systems at large data centres.

S&P Global recently placed Telangana alongside Maharashtra, Uttar Pradesh and Gujarat at the top of its Data Centre Policy Attractiveness India Index. Telangana's ranking reflects its combination of power-related measures, regulatory support, land and capital incentives and operational assistance.

The state's Data Centres Policy promises dual-grid power supply, access to renewable energy, fibre infrastructure and continuous water supply for cooling systems, besides fiscal incentives. The policy also provides for renewable energy procurement through open access, explores captive solar and wind generation and promises electricity at generation cost for eligible data centres.

Energy and utilities consultant Dr P. Sridhar said the ranking validated Telangana's early policy design but cautioned against relying on incentives without adequate grid infrastructure. “Telangana must publish a data-centre-specific transmission and renewable-procurement roadmap before approving further multi-gigawatt clusters,” he said.

The Union power ministry informed Parliament in July 2026 that artificial intelligence (AI) data centres were expected to add 26.3 GW of electricity demand by 2031–32. The additional demand is expected to be integrated into the grid and met primarily through renewable energy.

Cooling systems account for an estimated 40 per cent of a data centre's electricity consumption, placing additional demands on power generation, transmission, storage and backup infrastructure. For Telangana, the projected expansion of data centres would require coordinated planning for renewable energy procurement, grid upgrades and energy-efficient cooling systems.

IT solutions architect T. Kiran Reddy said investors required predictable regulations and reliable infrastructure rather than incentives alone.

“Global hyperscalers are not looking only for cheap land or power tariffs. They want bankable power contracts, credible renewable supply, transparent water norms and predictable approvals. Telangana can lead if it converts its policy commitments into measurable service-level standards,” he said.

Water availability presents another challenge. Hyderabad is among India's data centre markets facing high water stress, with a projection estimating a domestic and industrial supply shortfall of 909 million litres per day, equivalent to 240 MGD, by 2027-28.

Deficient monsoon rainfall this year has also left major reservoirs supplying Hyderabad at low levels.

Although Telangana's policy promises “continuous water supply for heavy duty cooling systems,” the projected shortage has raised questions over the availability of freshwater for cooling operations.

Measures proposed to address the issue include using treated wastewater wherever feasible, adopting closed-loop or liquid cooling systems, disclosing water consumption and conducting environmental assessments.

Kiran Reddy said data centres should use recycled water and dry coolers wherever possible, while water audits should form part of the approval process. Hyderabad's established technology ecosystem, relatively lower inland costs, fibre connectivity and growing AI-ready development pipeline remain advantages for attracting data centre investments.