When it comes to getting investments or branding, there are few politicians who can match Andhra Pradesh Chief Minister N Chandrababu Naidu. No sooner had he come to power he had launched ‘Power Sector Reforms 3.0’ to address the State’s energy crisis.

His current strategy focuses on aggressive cost reduction, a shift toward renewable energy, and institutional professionalisation.

To lure investors, Naidu and his team have been leaving no stone unturned. This was evident when Andhra Pradesh cleared a power distribution licence for a Google data centre in Visakhapatnam under a new policy.

The policy framework allows large data centres to manage their own power needs. This is in keeping with the Centre’s thinking as well. The policy applies to projects with at least 300 MW load, enabling them to build and run their own power networks, according to information available.

A deemed licensee in Andhra Pradesh, under the Electricity Act, 2003, is an entity authorised to distribute electricity without a formal, separate licence, such as SEZ developers (based on 2010 notifications).

Before one looks into the challenges of this move, it is important to understand the key aspects of deemed licensees in Andhra Pradesh.

According to the Union Commerce Ministry’s 2010 notification, SEZ developers are deemed distribution licensees. But, they are not automatically granted this status without meeting certain conditions or scrutiny, and sometimes require formal recognition by the Electricity Commission.

In Andhra Pradesh, the Andhra Pradesh Electricity Regulatory Commission (APERC) holds the authority to regulate, recognise, and oversee these deemed licensees to ensure compliance with the Electricity Act, 2003. The AP Electricity Duty Act includes the Andhra Pradesh State Electricity Board and authorised power corporations within the definitions of licensees. The licence allows power from multiple sources, including renewable energy, limited to their own use.

The guidelines

After obtaining the licensee status in Andhra Pradesh, the licence allows the holder to directly procure power — conventional and green — from various sources including open access and captive plants, to feed their data centres.

In this case, while Google will have distribution rights, it will operate under the regulation of the Andhra Pradesh Electricity Regulatory Commission and will not supply power to third-party consumers.

This is in a way entry of private sector into power distribution business, but with limited operations. Understandably, it will lessen pressure on the dedicated grids. But, the challenge may come in using the open access.

Open access has not really worked that well, as there are approval delays by existing distribution utilities (DISCOMs) because of fear of losing cream customers. Of course, ways have been worked around the policy, where grid access has been a challenge, battery storage has been used. Land acquisition is another challenge which deemed licensees could face.

But data centres are high-paying consumers and if they exit regular distribution utility, State utilities lose their most profitable customers.

DISCOMs use profits from High Tension (High Voltage) electricity supply/industrial users to subsidise agriculture and domestic tariff. The move would mean remaining consumers may face higher tariffs. Then there is an issue of stranded asset, which has led to debt for many distribution utilities. If big loads migrate, fixed costs get spread over fewer users.

Then comes the issue of transmission infrastructure. Data centres get to bypass the existing DISCOM but will use State transmission infrastructure. Of course, all these requireAPERC approval.

Critics say, if Google/Reliance get DISCOM licence, tomorrow steel, cement and ports may demand the same. The approval to Data Centre states that 51 per cent should be renewable. Data Centres need power round the clock, and if renewable is unavailable, will they fall back on coal or grid?

Litigation worries

The Supreme Court recently upheld that Indian Railways is not a deemed distribution licensee and remains liable to pay cross-subsidy and additional surcharge charges. In that context, Andhra Pradesh’s decision to enable distribution rights for Google reflects how large consumers are increasingly seeking licensee status. This could trigger fresh litigation around cross-subsidy charges and further strain DISCOM revenues.

While it is advantage Google — 300 MW plus, smaller data centres/startups will be dependent on regular DISCOM tariff. Another critic said, if Google faces outage, only the government will be blamed.

Despite the media hype over significant autonomy conferred to Google as a Deemed Distribution Licensee (DDL), it does open the door to several complex technical, regulatory, and environmental challenges.

As a Deemed Distribution Licensee, Google is no longer a standard high-tension consumer of the local DISCOM, but the latter must still maintain rigorous standby power arrangements to ensure 24x7 supply.

To protect the State grid from sudden drops, Google must comply with strict Power Quality Regulations. Also the pricing structure for standby is significantly more expensive than Google’s direct renewable PPAs.

APERC’s guidelines for standby charges (which is charged when a data centre with a licence still wants to draw power from AP DISCOM as an emergency back-up) include premium pricing. Usually, no penalty is charged for exceeding the contracted maximum demand during an emergency standby period, provided prior notice is given to the DISCOM.

This is indeed a good move, but the power distribution market is yet to mature. The success of this move will set an example for future projects, so the onus is both on the State and Google, as any slip will not only impact the Data Centre but also affect regular consumers.

Published on May 13, 2026