India’s data centre ecosystem is witnessing robust and sustained growth, propelled by Covid-19 tailwinds. As the industry continues to expand, a plethora of opportunities are emerging for industry stakeholders. At a recent tele.net conference on “Data Centres in India”, Colonel Deepak Mohan Anand, chief executive officer, public services, ESDS Software Solution; Sudhir Kunder, country head, DE-CIX India; and Durgesh Pandey, chief financial officer, Web Werks Data Centres, shared their views on the evolving industry, sustainability initiatives, and the way forward. Key takeaways from the discussion……
What role is your organisation playing in the data centre domain?
Colonel Deepak Mohan Anand
ESDS Software Solutions is a cloud services and data centre provider. We currently own four data centres in India, located in Nashik, Mumbai, Bengaluru and Mohali. We not only have all the data centres in India, but our cloud orchestration platform is also our own product, for which we have patents in the US, the UK and India. The majority of our business is focused on government workloads. Almost 70 per cent of our revenue is from the government sector. The key e-governance infrastructure and digital initiative projects of the government are being driven and supported by ESDS’s cloud orchestration platform and data centres. Further, almost 95 per cent of smart meters that are being rolled out in the country are being supported by ESDS data centres. In addition, we are supporting initiatives such as Stand-Up India, Startup India and eMudhra. We also have a big footprint in Maharashtra, Karnataka and Uttar Pradesh. We have a long-standing strategic partnership with the Software Technology Park of India (STPI). STPI has data centres at almost 64 locations. Very soon, we would be rolling out our facilities and our orchestration technology in few more data centres of STPI. ESDS is also a part of the Cloud Computing Innovation Council of India. We will be doing a lot of work and taking initiatives with various ministries to promote indigenous technology and in-house development to create domestic, Made in India capabilities.
DE-CIX is a global organisation with 26 years of experience in the data centre business. We are the largest interconnection platform, spanning 100 plus countries with 40 plus internet exchange points and 300 plus connected networks across the globe. The company’s India journey has been exhilarating, with five years in the business. DE-CIX India is number one in terms of connected customer base. More importantly, DE-CIX Mumbai is number one in Asia Pacific in terms of connected customers across 29 countries and 153 internet exchanges. We have been able to achieve this in the last three years.
Being an interconnection platform is very unique in the sense that we are relevant not only to the retail part of the business, but to the enterprises side as well. At DE-CIX, we say that latency is the new currency. There is a lot of noise that is happening around 5G, internet of things (IoT) and artificial intelligence (AI), but I feel that the sum of all these three things will be greater than the benefit of one. In our terminology, we call this the digital interconnection triangle. 5G will typically be the brain, and AI and IoT will be the heart and the hands. This digital triangle will create several use cases in the future. Although a small part of the whole ecosystem, DE-CIX creates and brings in a lot of value propositions.
Web Werks is a 20-year-old company that was formed in 2000. The data centre segment of the company started in 2015-16, when the first data centre was established in Pune. Thereafter, data centres were set up in Mumbai and Noida. The data centres that Web Werks currently operates are very small though they are densely connected. In 2021, we formed a joint venture for expansion with a global investor, which is investing around $150 million. From very small, fledgling data centres, we are thinking fresh and trying to deliver exponentially in the next two to three years. We are expanding from brownfield locations in Pune and Noida. We have taken up new greenfield locations in Mumbai, Hyderabad and Bengaluru and all the key enterprise markets. We are also working with various government agencies across India. For instance, Web Werks was the first company to be recognised under Uttar Pradesh’s recently launched data centre policy. We are also working with the state governments of Karnataka, Maharashtra, etc.
How has the policy and regulatory environment for the data centre segment evolved over time? What are the gaps that still remain?
Colonel Deepak Mohan Anand
There have been significant positive developments towards ensuring a conducive policy environment for the growth of the data centre industry. A major step has been the grant of infrastructure status to data centres. Similarly, various industry-friendly and accommodative policies are being released by various state governments. All this has happened after protracted interaction, wherein the industry and various bodies put forth the requirements before key decision-makers.
Many gaps have been covered and policy provisions have been made for the growth of the industry. However, a significant gap is that policies from various state governments are very discrete. There are stark differences among states in terms of fiscal and non-fiscal provisions. An important step is that the central government must lay down a common platform or a minimum baseline for all the states. If there are any state-specific provisions or additional benefits that they want to pass, they should be beyond and above the minimum baseline. The second important gap is that the National Building Code of India 2016 (NBC 2016) still does not have a specific code for data centres. It treats data centre as a standard commercial building. The Bureau of Indian Standards has already been mandated to create that, but until that comes about, there is a definite requirement from the government to lay down these guidelines or directives to the respective states.
There are more than 30 clearances that a data centre operator needs to obtain, which need to be brought under one single window. Another gap with regard to the grant of infrastructure status is that it talks about 5 MW of IT workload. However, that precludes many mid-sized and small data centre operators. Also, edge data centres certainly would not have 5 MW of IT workload. This means that the grant of infrastructure status to data centres will be applicable only to hyperscalers, which are generally promoted and established by very large players that do not have the need for easy flow of capital. The mid- and small players would definitely need an easy flow of capital, which is likely to be ensured by the grant of infrastructure status. Lastly, there is a need to focus on indigenisation and creation of capabilities. We are also a part of the deliberations taking place in this regard. Very soon, there is a possibility that the Ministry of Electronics and Information Technology will come out with a policy for creating different levels of cloud service providers and data centre operators, with policy guidelines making it mandatory for government workloads to have more than 51 per cent of indigenous content.
While there is significant work happening on the regulatory front, it is not easy to implement edge data centres. Government initiatives to promote the development of local infrastructure need to be in place. We are ecosystem players and, unlike global organisations, we do not have deep pockets. Data centres are warehouses of the digital economy today. But for data centres to be truly successful, there needs to be a robust mechanism of connectivity.
The policies can be classified into three parts. One focuses on the ease of doing data centre business. The second is the kind of capital incentives provided and the third is opex incentives. The opex will come from the running costs, of which 25-35 per cent is the electricity cost. On the opex front, there are many exemptions provided by the government. It is also working on granting incentives in the solar segment. For instance, in Maharashtra, there is an electricity duty exemption. In Uttar Pradesh, companies moving from commercial to industrial set-ups can avail of the ED exemption. However, that itself is a gap as it is very time-consuming to get it converted, and players need to abide by certain bye-laws that are not actually aligned with the Uttar Pradesh government’s policy. So, byelaws also need to be changed.
Meanwhile, from the data centre perspective, the renewable energy sector has started seeing a change since 2017. For example, many operators now have a target of adopting 100 per cent renewable energy by 2030-35.
However, the policy is such that, based on certain current transformer potential transformer ratios and contractor load, adoption cannot go beyond 65 per cent. By any stretch of the imagination, 100 per cent is not possible. Some tweaking in policy is needed to get to 100 per cent. Further, many things have happened since 2018 on the ease of doing business front. The Draft Personal Data Protection Bill, 2018 was launched, coupled with the 4G launch, driven by the pandemic that led to a huge surge in data consumption in India. The privacy laws that were introduced in 2018 as a draft model stated that there should be suitable localisation of data and the data that is being used in India should be kept in the country. In 2022, the draft has been revised with a clause related to trusted nations. This is quite an open clause. The trusted nations can include Singapore, Hong Kong and the US. Currently, hyperscalers bring just 1 per cent of traffic in India while the rest is parked in Hong Kong or Singapore. If that traffic is purely localised in India, we will probably have a huge market.
As for the next gap, there is a classification between rural and urban in certain states. Incentives are available for creating a data centre in rural areas, while there are no entitlements or incentives for urban areas. This includes fiscal incentives as well as non-fiscal incentives. Further, most governments have restricted capital incentives. For example, if there is a huge investment in setting up a 20 MW data centre, which can cost around Rs 6 billion, the capital incentive is limited to Rs 100 million-Rs 150 million, varying from state to state. That is also deferred over a period of seven to eight years.
What are your sustainability targets for the Indian market? Have you been able to achieve them and are you on the right path?
Colonel Deepak Mohan Anand
Even though there is an intent, there is a very definite need and requirement to enhance the usage of renewable energy. ESDS is looking to push renewable energy adoption in a very big way, but there are constraints in terms of charges imposed by the discoms. There is only a limit up to which the government can do the cross-subsidising. If it has to start subsidising the discoms for the transportation of renewable energy, it becomes financially unviable. Until a solution to that is found, it is going to remain a far-fetched dream. It has to make financial and economic sense for the data centre operator to shift to renewables.
The second aspect is what the data centre can do internally to optimise and ensure that the consumption of power is low and CO2 and heat generation is less. ESDS has its own patented technology that performs both vertical as well as horizontal auto-scaling. This improves efficiency, delivers huge cost optimisation and provides immense efficiency in terms of creation and utilisation of cloud infrastructure. There are also certain measures in terms of laying out our data centres appropriately, avoiding all those places where there can be system inefficiencies because of wrong design, inappropriate layout of cables, inappropriate layout of the blanketing infrastructure, and the layout of power infrastructure. These are the measures that we are taking internally. However, there is huge scope for further optimising it and reaching the aspirational global standards.
Currently, the capacity of Web Werks is very small. We will be completing our sustainability initiatives within the next five to six months. However, as Iron Mountain has signed COP26, it has a strict target and it has to abide by that. By 2025, a green certification for each data centre building needs to be achieved. The other targets include being 100 per cent renewable energy-driven by 2030 and all net zero by 2035. This is a challenge from the policy perspective as well. These targets cannot be achieved in India as of now.
Many data centre operators are into renewables in a big way. Many of them have signed strategic agreements with solar power providers. However, adopting renewable energy requires a significant amount of money. Whether those megawatts can be supplied by the existing state government is also doubtful. These challenges are present in the renewable energy segment.
With the growth of the data market, the renewable energy market is also impacted. After 2014, the price of solar power per unit had declined by 40-50 per cent. But since the past one year, with the pandemic, a total ban on Chinese imports, and customs duty on solar modules and cells, the cost of solar has increased. Earlier, what data centre operators could source at Rs 2.50-Rs 3 has now gone up to Rs 4-Rs 4.50. With the additional surcharge, open access charges, transmission charges, etc., the saving is not much.
In Asia Pacific, India and Indonesia are developing from the data centre perspective, but the policies need to be aligned to make renewable energy adoption cheaper. With regard to optimising energy consumption, Web Werks’ data centres are small, so doing much on the power usage effectiveness (PUE) front is not possible. In Mumbai, the PUE is 1.61-1.63, but for locations such as Noida, the PUE can go down as low as 1.4-1.43. So, there are many operational initiatives that the industry can take on this front. In the earlier scenario, before the hyperscaler boom, data centres had a capacity of 2-3 kW per rack, but consumption was still low, at 40-60 per cent. If that consumption increases, the PUE may reduce. In the Indian scenario, the PUE for running data centres is around 1.7 on average. However, the utilisation is higher in the new data centres that are coming in as they have new equipment that is more energy efficient. This equipment reduces the PUE by around 5 per cent. Second, from the customer perspective, the new servers are more powerful with much higher space and computing power. Adopting these new servers will bring down the PUE by 3-5 per cent.