Gujarat Data Centre Policy: Green Hydrogen, AI Push Seen Adding 50%+ To India's Solar Capacity Growth

Gujarat's newly announced data centre policy is set to significantly boost India's solar power demand, with green hydrogen and AI-linked capacity together expected to add more than half of the incremental solar capacity growth over the next decade, according to a Nuvama Institutional Equities report.

The Gujarat government has rolled out financial and non-financial incentives targeting 7.5 GW of hyperscale capacity, involving a capex of roughly Rs 6 lakh crore. The policy covers projects of 150 MW and above, mandates a minimum 51% renewable energy mix, and has already drawn interest from 14 investors with demand running at nearly twice the policy target, Nuvama said.

Key financial incentives include a power tariff subsidy of Rs 1 per unit with zero electricity duty for 20 years, a 2.5% capital subsidy for projects set up in the Dholera region, and 100% SGST reimbursement on eligible capital and operational spends. Nuvama estimates this translates into a net capex subsidy of 5.2% and a net opex subsidy of 22.1% over 20 years, materially improving project viability and investor confidence on payback periods.

Key numbers to note in the Gujarat Data Centre policy
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Nuvama has also noted that India's solar-driven power demand is poised for a 22% compound annual growth rate between FY26 and FY35 in its base case, led by the emergence of renewable power-intensive digital infrastructure and green hydrogen, alongside traditional demand drivers. Green hydrogen and AI-linked demand are estimated to contribute more than 50% of this incremental solar capacity growth, taking India's solar power capacity from 150 GW currently to as much as 817 GW by FY35 in the base case, and 973 GW in the bull case.

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India's overall power demand is projected to grow at a steadier 6% CAGR over the same period, with solar's share of the power mix rising from 9% in FY26 to 33% by FY35.

Solar PV Stocks Undervalued Despite Tailwind

Despite this demand outlook, Nuvama flagged that the solar PV manufacturing chain remains significantly undervalued relative to the rest of the power value chain. Solar PV stocks trade at a FY28 price-to-earnings multiple of 13 times, a discount of 69% to power industrials, 60% to power transmission and distribution players, and 53% to power generation companies, even as the segment carries a healthy two-year earnings growth rate of 23%. Nuvama termed this combination of low valuation and steady growth as "Growth At A Reasonable Price," or GARP, arguing the segment is better placed than peers to benefit from the emerging solar upcycle.

The brokerage added that India currently operates about 1.5 GW of hyperscale capacity, which it expects to expand to 11.5 GW by 2035, with Reliance Industries emerging as the single largest contributor.

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