Whalesbook
Demand for Advanced Cooling Spurs Investment
India's rapidly expanding data center market, driven by the exponential growth of artificial intelligence and high-performance computing, is creating significant demand for advanced cooling and thermal management solutions. This specialized sector is projected to attract $2 billion to $2.5 billion in investments over the next few years. This spending is needed as higher computing loads generate more heat, pushing operators to adopt new methods beyond traditional air cooling.
Shift to Liquid Cooling Driven by Heat Intensive Loads
Operational data center capacity in India has quadrupled since 2020 to about 1.5 gigawatts (GW) and is still growing. This expansion requires more advanced cooling systems. Liquid cooling technologies are increasingly used alongside, and sometimes instead of, traditional air cooling as facilities handle higher rack densities and higher energy use. Analysts expect India's data center capacity to reach 3-3.5 GW in four to five years, with cooling investments estimated at around $1.3 billion per GW for new capacity. Efficient cooling is crucial, as AI workloads are expected to drive at least 75% of data center growth.
Global Players and Local Innovators in Cooling
Global firms like Vertiv and Schneider Electric currently lead the cooling segment, drawing on their deep expertise in critical infrastructure and automation. However, the Indian market is also seeing growth from domestic startups focused on specialized areas. Hyderabad-based Refroid Technologies is creating local solutions for liquid immersion and direct contact liquid cooling, aiming to overcome supply issues faced by larger vendors. Bengaluru-based Uravu Labs is developing resource-efficient systems that turn data center heat into water using liquid desiccants, a concept called 'water-positive cooling'. These advancements show a growing emphasis on sustainability and local solutions in the sector.
Environmental Concerns: Water Use and Energy Demand
While India's rapid data center expansion supports digital growth, it poses significant environmental challenges, especially regarding water use and energy consumption. The growing use of water-based cooling, common in warmer climates, risks straining regions already facing water scarcity. A 100 MW hyperscale facility using evaporative cooling can use about 800,000 liters of water daily, worsening local shortages. This is concerning as two-thirds of new data centers since 2022 are reportedly in water-stressed areas. AI's energy demands are also substantial; estimates suggest a single ChatGPT query uses ten times the electricity of a standard Google search. Global data center electricity use, largely due to AI, may nearly double by 2030. In India, data center power capacity could jump ninefold by 2030, increasing their share of national electricity use from under 1% to around 3%. This rising demand puts significant pressure on the power grid, requiring major upgrades to infrastructure. Electricity cost is becoming a key factor that could influence where data centers are built and India's overall competitiveness.
Risks: Sustainability and Market Competition
The rapid growth of India's data center market carries risks, primarily concerning the sustainability of this expansion. Water scarcity is a significant issue, with data centers potentially consuming billions of liters yearly, which could lead to community opposition and project delays, similar to what's seen in the United States. The massive power needs for AI infrastructure, estimated to require up to 250 GW by 2033 for a single entity like OpenAI, could strain national grids and raise electricity prices. Current policies cover data protection and energy use but lack specific rules for water consumption, creating a regulatory gap. Competition is also increasing. While global firms like Vertiv and Schneider Electric remain strong, new domestic startups such as Refroid Technologies (offering local liquid cooling) and Uravu Labs (with water-positive cooling) point to a changing market. However, the high upfront cost of advanced cooling technology is a barrier, possibly favoring larger companies. Challenges with integration, cost, and technical know-how also slow liquid cooling adoption, despite its benefits for high-density AI.
Policy Support and Growth Projections
The Indian government supports the data center sector through policies like the National Data Centre Policy and state incentives, encouraging investment and domestic manufacturing. These measures, along with classifying data centers as essential infrastructure, help create a supportive environment. Analysts predict the India data center cooling market will reach USD 9.28 billion by 2031, growing at a 25.47% compound annual growth rate (CAGR). The sector is increasingly focusing on sustainability, promoting renewable energy and water-saving cooling systems. Advances in waste heat recovery and AI-powered thermal management will also be key to improving efficiency and reducing environmental impact.