Key Points
- Emerging market data centre pipeline is nearly twice current global operating capacity
- India's rapid growth is straining regional grid infrastructure according to report
- Energy and water constraints identified as primary risks to expansion
Emerging markets could drive the next phase of global data centre expansion, with a development pipeline nearly twice the size of current worldwide operating capacity, according to a report published by S&P Global Ratings on Friday (4 September).
The report, titled “Opportunity Versus Risk: The Real Decider Of Data Center Growth In Emerging Markets”, found that growing opposition to data centre construction in developed markets is pushing operators to seek new locations. This shift could benefit emerging economies through increased investment in digital infrastructure, but S&P Global Ratings warned that gains will not be evenly distributed across countries.
The credit rating agency said the scale of investment and the type of facilities built will depend on supportive government policy, access to natural resources and the provision of infrastructure to support data centre requirements. It expects the conversion of planned projects into operational facilities to favour markets with reliable electricity grids, clear permitting processes, access to renewable energy and available capital.
Energy and water risks
Energy and water constraints are the primary risks to growth, according to the report. This is particularly true in regional data centre hubs where rapid expansion coincides with electricity grid bottlenecks or water stress, meaning demand exceeds available supply.
Developers in emerging markets may also face growing social risks if data centre expansion is perceived to increase electricity costs, reduce grid reliability or restrict local access to water and land, the report noted.
In the Asia-Pacific region, data centre expansion is marked by diverging energy profiles. Rapid growth in markets including Malaysia and India is straining regional grid infrastructure, making the transition to renewable energy more urgent, according to S&P Global Ratings.
The report warned that power availability and grid limitations may push developers toward independent power sources that are potentially less clean to ensure reliability. Data centre expansion in areas with high water stress, particularly in coastal and industrial hubs, requires a shift toward water-efficient cooling technologies.
Regional challenges to data centres
In the Middle East, rapid expansion of digital activity is supported by cheap and abundant power but threatened by extreme water scarcity. The region’s growing supply of solar power supports data centre expansion, but limited access to water and the resulting pressures on energy use pose operational risks.
Data centres expanding into drier areas face risks if they do not adopt circular resource technologies such as solar-powered desalination and advanced closed-loop cooling systems, which recirculate water rather than drawing fresh supplies.
Africa has high growth potential and large amounts of untapped renewable energy, the report found. However, infrastructure readiness remains a key challenge even in areas with plentiful green energy. Regional data centre hubs may have sufficient resources, but unstable power grids may hinder operators’ ability to deliver reliable power without reducing supply to local communities.
South Africa provides a clear example, with growth limited by power availability despite high demand and investment, according to S&P Global Ratings. Data centre operators may need to deploy decentralised modular energy solutions, meaning smaller self-contained power systems that can operate independently of the main grid, while also managing local water use.
The report noted that while such solutions could help ensure reliability, they may also slow progress toward cleaner energy systems and decarbonisation goals in certain countries. Nigeria was cited as an example where use of diesel for backup power remains common.
In Latin America, expansion is supported by strong renewable energy generation, but the region faces transmission bottlenecks and resource management issues. Data centres often cluster in specific regions, increasing the risk of transmission congestion and localised water stress.
Long-term data centre expansion in Latin American markets will depend on connecting remote renewable resource zones to digital hubs through high-voltage interconnections, the report stated. Operators will also need to implement cooling strategies that protect local water supply and ecosystems.
The report come as global data centre demand continues to grow, driven by cloud computing, artificial intelligence workloads and digital transformation across industries.
For Indian data centre operators and investors, the report stresses the importance of grid reliability and water management as expansion accelerates across the country’s major metros and emerging secondary markets.
Your Questions, Answered
How large is the emerging market data centre pipeline?
According to S&P Global Ratings, the development pipeline in emerging markets is almost two times larger than current global operating capacity.
What are the main risks to data centre growth in emerging markets?
Energy and water constraints are the primary risks, particularly in regional hubs where rapid expansion coincides with electricity grid bottlenecks or water stress.
How is India's data centre expansion affected by infrastructure challenges?
The S&P report notes that rapid growth in India is straining regional grid infrastructure, making the transition to renewables more urgent and potentially pushing developers toward independent power sources.
What factors will determine which emerging markets benefit from data centre investment?
S&P expects growth to favour markets with reliable electricity grids, clear permitting processes, access to renewable energy and available capital.
