An unpopular clean energy source that can satiate the surging power demand that is expected to emerge because of burgeoning Data Centers
In today’s edition of TOPICAL Wednesday, we cover current events and explore how they might unfold in the near term. However, today’s topic is more long-term oriented. Today, we highlight the ongoing global issue of significant surge in POWER CONSUMPTION and a potential solution to the same which could be a boon and potentially triggering multiple chain reactions if it works out properly. The good news is, India is already working towards this solution. The topic that we will be discussing today is, NUCLEAR POWER.
Now, I know it may sound unfamiliar. Forget about anything exciting; when was the last time we heard about developments in the nuclear power sector other than news of plant closures? But recently, or actually for some time now, things have been brewing in this segment that could have wider implications. But before we delve into that, let’s start by understanding the problem first.
Growth of Data Centers in India
I am sure that most of you are aware of the growth that the data center sector is witnessing in India. Over the past three years, India has added 100-150 MW of data center capacity annually, expected to reach 900-950 MW by 2024. The industry is now entering a rapid growth phase, expecting to add 300-350 MW each year to reach 2.32 GW by 2028.
This growth could accelerate further as many international tech giants are in the process of setting up data centers in India. Recent examples include:
– G42: In September, G42 from Abu Dhabi announced plans to build 2 GW of AI-ready data centers in India.
– Google: Google is negotiating to acquire a 22.5 acre site in Navi Mumbai for its first self-built data center in India, enhancing its cloud services.
– Microsoft: In 2024, Microsoft expanded its data center operations in Hyderabad by acquiring an additional 40 acres of land.
– Princeton Digital Group (PDG): PDG announced a $1 Bn investment in 2024 to expand its data center capacity in India, focusing on major hubs like Mumbai and Chennai.
– CtrlS Datacenters: In 2024, CtrlS Datacenters unveiled plans to invest Rs. 2,200 cr. in a new data center park in Kolkata, with a total capacity of 60 MW across four phases.
These expansions highlight the increasing demand for data infrastructure driven by digital transformation and AI advancements in India. Many of these data centers are being set up to support local capabilities and AI services.
It’s not just multinational companies; the Indian government is also promoting AI with its AI Mission launched in March 2024, with a capex of Rs. 10,372 crore over 5 years.
Energy Consumption
Data centers are rapidly growing and it is amazing to see such significant local expansions but they have a significant downside—they consume a massive amount of energy. Power makes up 65% of their total operating costs, primarily because IT equipment and cooling systems need to run 24/7.
(Source: Care Edge)
In 2023, data centers in India used about 139 Bn kWh of electricity, making up roughly 2% of the country’s total power consumption. This is enough energy to supply around 4 crore average Indian households for a year. As AI adoption increases in India and globally, the energy needs of data centers are expected to rise significantly.
By 2030, data centers could account for about 8% of global energy consumption, a substantial increase from current levels. The International Energy Agency predicts that by 2026, data centers’ electricity use could exceed 1,000 terawatt-hours, more than double the amount in 2022. To put it in perspective, one terawatt-hour can power about 70,000 homes for a year.
Decarbonization Efforts in India
India is on a mission to decarbonize its industries, but it needs to happen quickly. Starting January 1, 2026, the EU will fully implement the Carbon Border Adjustment Mechanism (CBAM). This policy aims to impose carbon tariffs on imports of carbon-intensive goods like steel and cement from India. These tariffs, ranging from 20-35%, could raise costs and reduce competitiveness for Indian companies exporting to the EU. India exports about 3-5 MMT of steel to the EU annually, representing 15-40% of its total steel exports, which will be affected by these tariffs.
Now, India plans to achieve a 500 GW non-fossil fuel energy capacity and meet 50% of its energy needs from renewable sources by 2030. The country aims to cut carbon emissions by 1 billion tons and lower its carbon intensity by 45% by the same year, with a target of net-zero emissions by 2070. As of September 2024, India has already reached 46.3% of its total capacity from renewable energy, with solar and wind power making up the majority.
(Source: India Invest)
It is important to note that, solar and wind energy are intermittent, producing power only when the sun shines or the wind blows. This variability makes its challenging to match supply with demand and integrate these sources into the power grid, which requires a steady flow of electricity. To address this, grids need better storage solutions and smart technologies.
So, on one hand, we need more energy to meet rising demand and on the other hand, we must quickly decarbonize industries, which means increasing renewable energy capacity to provide power 24/7.
This condition, which is somewhat universal, can be addressed by one source of energy—NUCLEAR POWER. Guess what? It is witnessing a resurgence.
Nuclear Energy: A Reliable Power Source
Nuclear energy was once seen as a promising solution to the energy crisis in the 1970s and 1980s, leading to significant investments in nuclear power plants. However, safety concerns arose after incidents like Three Mile Island in 1979, Chernobyl in 1986, and Fukushima in 2011, causing public skepticism and the shutdown of many plants. Despite these challenges, nuclear energy remains a potent and clean source of electricity, generating large amounts of energy from minimal fuel without greenhouse gas emissions. Additionally, unlike solar and wind, it provides a steady and reliable energy supply, crucial for meeting large-scale demands while reducing carbon emissions. Consequently, nuclear power plant construction is regaining momentum; by early 2024, 60 reactors are under construction worldwide, with China leading with 19 reactors. On the other hand in India, there are 8 ongoing projects and there are 2 in the USA underway.
Yes, Nuclear Power has benefits but also significant downsides. Apart from mass destruction, traditional plants also have high costs, long construction times, and safety concerns. To address these issues, there is increasing interest in Small Modular Reactors (SMRs).
Small Modular Reactors: A New Energy Solution
SMRs are compact nuclear reactors with a capacity of up to 300 MW, about one-third the size of traditional plants. They can be built in factories, reducing construction time and costs. With simpler designs and passive safety systems, SMRs are inherently safer and offer flexibility in location, allowing quicker deployment to meet energy demands.
Major US tech companies, expanding rapidly with the rise of AI and large language models, are fully investing in this technology.
– Amazon: Recently Amazon announced that It is investing over $500 Mn in partnerships with X-energy and Dominion Energy to develop SMRs, aiming to deploy 5 GW of nuclear energy by 2039 to support its data centers and AI needs.
– Google: It plans to purchase nuclear energy from Kairos Power, focusing on SMRs to provide 500 MW of power for its data centers.
– Microsoft: It is working with Constellation to secure nuclear energy, including from SMRs, for a stable power supply. In 2024, Microsoft also signed a 20-year deal to restart the Three Mile Island nuclear plant to power its AI data centers.
– Oracle: It is planning to power a new gigawatt-scale AI data center with 3 SMRs. Although building permits have been secured, these reactors are not expected to be commercially viable until the 2030s.
What’s happening in India?
India is actively expanding its nuclear energy capabilities to enhance energy security and sustainability. The country plans to increase its nuclear power capacity from 7,480 MWe to 22,480 MWe by 2031-32, with the development of 10 new reactors. This expansion aims to expand capacity by 3x by 2030, supporting energy needs and reducing carbon emissions.
Surprisingly, the Nuclear Power Corporation of India (NPCIL) announced that it will manage a 220 MW nuclear plant for private companies, marking the first time accessibility of nuclear power for commercial use to private players. This initiative targets industries like steel and cement, which require consistent power.
The government also plans to develop indigenous SMRs, known as Bharat Small Reactors, with state-run companies like NTPC and ONGC. The goal is to deploy 40-50 SMRs to replace older thermal plants and help achieve net-zero emissions by 2070.
Closing Thoughts
Countries worldwide, including India, are investing in nuclear energy and SMRs to reduce reliance on fossil fuels. However, successful implementation is still limited, with only 3 operational SMRs globally—2 in China and 1 in Russia. These reactors remain expensive and time-consuming to build, and the nuclear sector has a history of overpromising and underdelivering. Despite these challenges, nuclear energy is crucial for sustainable growth, and costs may decrease with investment in R&D and manufacturing facilities of scale. India on its part may be slowly opening up its nuclear sector to private players which could further increase its feasibility with new investment and of course manpower. Also, If tech giants like Google, Amazon, and Microsoft can successfully create a sustainable power supply for their data centers in the USA, they could possibly do the same in India, where they are already increasing their data center capacities. So, from hereon things could become interesting in this space and therefore, warrants a close watch.
Meme of the Week
Follow us
If you are a diligent investor, you would not want to miss checking out our research platform, where we share insightful research on companies regularly. Gain access to our sample research by clicking on the button below.
