New Delhi: Gujarat’s newly announced data centre policy is expected to significantly boost India’s solar power demand over the next decade, with green hydrogen and artificial intelligence (AI)-driven data centre expansion projected to account for more than half of the country’s incremental solar capacity growth, according to a report by Nuvama Institutional Equities.
The report states that the policy, which offers a combination of financial and non-financial incentives, is expected to accelerate investments in hyperscale data centres while driving demand for renewable energy, particularly solar power.
Gujarat targets 7.5 GW of hyperscale data centre capacity
Under the new policy, the Gujarat government aims to facilitate the development of 7.5 GW of hyperscale data centre capacity, involving an estimated capital investment of around Rs 6 lakh crore.
The incentives apply to projects with a minimum capacity of 150 MW and require developers to source at least 51 per cent of their power from renewable energy.
According to Nuvama Institutional Equities, the policy has already attracted strong investor interest, with 14 investors expressing interest and demand nearly double the government’s initial target.
The report said the policy is expected to strengthen Gujarat’s position as a leading destination for large-scale digital infrastructure projects.
Incentives aimed at improving project viability
The policy offers several financial incentives to improve the commercial viability of data centre investments.
These include a power tariff subsidy of Rs 1 per unit, exemption from electricity duty for 20 years, a 2.5 per cent capital subsidy for projects established in the Dholera region, and 100 per cent reimbursement of State GST (SGST) on eligible capital and operational expenditure.
Nuvama estimates that these incentives translate into a net capital expenditure subsidy of 5.2 per cent and a net operational expenditure subsidy of 22.1 per cent over a 20-year period.
According to the brokerage, these benefits are expected to enhance investor confidence by improving project returns and reducing payback periods.
Solar demand projected to grow at 22% CAGR
The report forecasts that India’s solar-driven electricity demand will grow at a compound annual growth rate (CAGR) of 22 per cent between FY26 and FY35 under its base-case scenario.
This growth is expected to be fuelled by the increasing electricity requirements of green hydrogen production, AI-driven data centres and other renewable energy-intensive industries, alongside conventional sources of demand.
Nuvama estimates that green hydrogen and AI-linked infrastructure together will contribute more than 50 per cent of the incremental growth in solar capacity during the period.
India’s installed solar power capacity, currently estimated at 150 GW, could rise to 817 GW by FY35 in the base-case scenario and 973 GW under the brokerage’s optimistic or bull-case projection.
Solar to account for one-third of India’s power mix
While India’s overall electricity demand is projected to grow at a relatively moderate 6 per cent CAGR during FY26-FY35, the share of solar energy in the country’s power generation mix is expected to increase substantially.
According to the report, solar’s contribution to India’s power mix is likely to rise from 9 per cent in FY26 to 33 per cent by FY35, reflecting the country’s growing emphasis on renewable energy and decarbonisation.
The expansion of data centres, green hydrogen production and renewable-powered industrial infrastructure is expected to play a key role in achieving this transition.
Solar manufacturing stocks seen as undervalued
Despite the favourable long-term outlook, Nuvama believes the solar photovoltaic (PV) manufacturing sector remains significantly undervalued compared to other segments of the power industry.
The brokerage noted that solar PV companies are currently trading at a FY28 price-to-earnings (P/E) multiple of around 13 times, representing a 69 per cent discount compared to power industrial companies, a 60 per cent discount to power transmission and distribution firms, and a 53 per cent discount to power generation companies.
At the same time, the sector is expected to deliver a two-year earnings growth rate of 23 per cent, prompting Nuvama to classify it as a “Growth At A Reasonable Price (GARP)” opportunity.
The report said this combination of attractive valuations and strong earnings growth positions solar PV manufacturers to benefit from the anticipated expansion in renewable energy demand.
Hyperscale capacity expected to expand sharply
Nuvama also projects rapid growth in India’s hyperscale data centre industry over the next decade.
The country currently operates around 1.5 GW of hyperscale data centre capacity, which is expected to increase to 11.5 GW by 2035.
The brokerage identified Reliance Industries as the company likely to emerge as the single largest contributor to this expansion.
The report concludes that Gujarat’s data centre policy could become a catalyst for India’s renewable energy ecosystem by attracting large-scale investments, accelerating the adoption of clean energy, and driving substantial growth in solar power capacity over the coming decade.