Question: Can I limit access to Azure SQL Database for Power BI Desktop Application ONLY?

I'm not aware of any technical possibilities to limit Power BI Desktop to a particular data source. But instead of finding "how?", I would suggest to first understand "why?". I believe one of the greatest feature of Power BI is ability to perform easy data integration by user themselve without involving IT every single step. Limiting data source will completely defeat major Power BI purpose.

I would suggest to approach this from management point of view rather than technical point of view, such as:

• What are the damages user would cause by using Excel 2016 data source?
• Why would the user use Excel data source, if Azure SQL Database have all the data they would need?
• Did you explained the consequence of improper use of Excel data to the users?
• Is there any other way you and your user to find a common ground between flexibility and prevention of misuses? - a training, a policy, or an agreement, perhaps.

I doubt you will be able to do this. The permission itself is on the database, not the application.

Our company is restricting database access to only a small number of key users... essentially people who know what they're doing. Hence, these users should be smart enough to know when to use Excel/Power BI to access Azure.

A lot this comes down to policy and governance to ensure users know what they should be doing.

Regrds,

DJ