Andhra Pradesh Lets Data Centres Buy and Distribute Their Own Power

Data centres, the large facilities that store and process the computing needed for artificial intelligence (AI), are among the biggest electricity users in any economy. As demand for AI grows, the power these facilities need is rising sharply. To support its AI plans, the Andhra Pradesh government has announced a first-of-its-kind step: allowing data centres to operate as power distributors by granting them a deemed distribution licence (DDL).

A deemed distribution licence is not new in India's electricity system. It has usually been given to government bodies, special economic zones, ports, airports and industrial areas, and the Railways held such a status for about a decade. What is new is extending it to private data-centre developers. In simple terms, the licence will let these centres buy electricity at a relatively lower cost and distribute it within their own campuses. Andhra Pradesh has set a minimum connected load of 300 megawatts (MW) to qualify, and investors may combine the loads of several facilities to reach this threshold.

The benefit lies in how Indian electricity tariffs are designed. Bills have two parts: fixed charges, which must be paid regardless of use, and energy charges, which depend on actual consumption. Industrial and commercial users in India pay much higher tariffs than households and farmers, because they effectively subsidise those groups. A single data centre can need hundreds of megawatts — as much as a medium-sized city — so distribution companies must contract extra generation and build new infrastructure to serve them, and those costs feed back into tariffs. DDL status lets data centres bypass part of this structure and procure power more cheaply.

The context is a fast-growing sector. India's installed data-centre capacity is around 1.2 gigawatt (GW) and is expected to roughly quadruple by 2030. Andhra Pradesh is positioning itself as a leading hub: a major technology company is building a 1 GW campus in Visakhapatnam, and the state aims to create 5 GW of data-centre capacity there. However, the experience of the United States, where rising data-centre demand has pushed up local electricity prices, is a warning that India will need to balance industrial growth with fair power costs for ordinary consumers.

For exam aspirants, the policy is a useful case study in electricity regulation, cross-subsidy in tariffs, the role of state energy policy in attracting investment, and the infrastructure demands of the AI economy.