The data centre market in Southeast Asia has experienced robust growth over the last few years, driven by accelerating digital transformation. Malaysia sits at the forefront of this explosive growth – about RM99 billion in data centre investments have already been announced, with another RM149 billion in the pipeline.
Nonetheless, this rapid growth comes with equally significant environmental risks that threaten to strain local resources. As Malaysia positions itself to become the largest data centre hub in ASEAN, ensuring that this development aligns with the nation’s sustainability and climate goals is more important than ever.
The environmental cost of data centres: energy and water
Data centres are the engines of today’s digital economy. They power everything from streaming services to cloud computing to artificial intelligence, but they are also among the most energy-intensive infrastructures in the world, as these facilities house vast computing and storage equipment that must run continuously.
A traditional small-scale data centre consumes anywhere between 1 to 5 megawatts (MW) of power; while a hyperscale data centre consumes 20 to 100 MWs of power – or more. The International Energy Agency (IEA) projects electricity consumption from datacenters could reach over 1000 TWh in 2026 – roughly equivalent to the electricity consumption of Japan.
In Malaysia, 18 operational data centres already consume at least 800 MWs of electricity, which is expected to surge even further with 81 additional data centres by 2035. Projections indicate that demand will skyrocket to 7.7 Gigawatts (GW) by 2030 and a staggering 20.9 GWs by 2040, with the lion’s share of consumption concentrated in Peninsular Malaysia.
Water usage is another growing concern. Data centres rely on vast quantities of water to cool their servers and prevent overheating. A single 100 MW data centre consumes about 4.16 million liters of water daily – enough to meet the needs of a city of 10,000 people. Without stricter oversight, unchecked expansion could exacerbate water shortages.
Reshaping Malaysia’s energy landscape to support data centres
Recognising these risks, Malaysia is actively reshaping its energy policies to support both digital growth and sustainability.
“This effort includes a gradual rise in the composition of green electricity supplied by RE sources to 31 percent by 2025, 40 percent by 2035, and 70 percent by 2050”, he said in response to a question in Parliament on the measures needed to meet data centre renewable energy needs and its impact on future tariffs.” Addressed Deputy Minister of Energy Transition and Water Transformation (PETRA), Akmal Nasrullah in the national electricity supply at the Parliament.
These targets can be realised via various programmes, including the Feed-in-Tariff (FiT), large-scale solar (LSS), Net Energy Metering (NEM), Self-Consumption (Selco), New Enhanced Dispatch Arrangement (NEDA), Corporate Green Power (CGP), and Green Electricity Tariff (GET) programmes.
Additionally, the government has also introduced the Corporate Renewable Energy Supply Scheme (CRESS) to facilitate easier access to green electricity for corporations, including data centres. This would enable data centres to source green energy directly from RE producers while contributing to the strengthening of the national grid system.
Meanwhile, Malaysia’s main water regulator, the National Water Services Commission (Span) is also preparing stringent guidelines for data centres to use alternative sources of water including reclaimed water, rainwater, recycled water, and distilled seawater – with a strategic aim to achieve zero per cent reliance on potable water in three years.
Towards a sustainable data centre hub
The data centre industry is already turning to RE sources to power their operations globally. Tech giants like Amazon, Microsoft, and Google are investing in conventional PPAs 1 2 – agreements that enable them to secure RE at scale, even when the physical power generated isn’t directly connected to their facilities.
1 A PPA is a long-term contract in which a company agrees to purchase electricity directly from a renewable energy generator, typically from a nearby solar or wind farm. The physical power is delivered through the local grid to the company’s facilities, often providing both energy and environmental benefits. 2 A VPPA is a financial agreement rather than a physical energy transaction. In a VPPA, a company agrees to buy renewable energy at a fixed price from a generator, but the energy itself is sold into the wholesale power market. The company retains the renewable energy certificates (RECs) to claim the environmental benefits, while the VPPA helps hedge against energy price fluctuations.
Malaysia’s market is no exception. AirTrunk, a hyperscale data centre specialist and ib vogt, an international RE developer signed the first data centre renewable energy VPPA under Malaysia’s Corporate Green Power Programme (CGPP). AirTrunk will procure RE from the 29.99 MW solar farm that ib vogt is currently developing under the CGPP.
Beyond power purchasing agreements, innovations in data centre design are also advancing sustainability goals. Newer hyperscale data centre facilities are adopting cutting-edge cooling technologies – such as liquid immersion cooling and free air cooling – to significantly reduce both energy and water consumption.
But industry efforts alone aren’t enough. There is a need to ramp up policies at the national level with more holistic approaches. For instance, while current regulations depend on Power Usage Effectiveness (PUE) as a metric for energy efficiency within data centres; this does not account for broader impacts, such as carbon emissions from energy generation.
To ensure that Malaysia’s data centre boom aligns with its sustainability commitments, more transparent and comprehensive environmental impact assessments (EIAs) are needed. These assessments should consider the full social and environmental costs of data centre development and be made accessible to the public.
Striking the balance between growth and sustainability
Malaysia’s aspirations to become ASEAN’s sustainable data centre hub are within reach. The groundwork is already being laid through forward-thinking policies, corporate green initiatives, and technological innovations. However, realising this vision will require ongoing collaboration to ensure that data centre growth is both responsible and inclusive.
By embracing comprehensive sustainability standards and strengthening environmental accountability, Malaysia can set a new benchmark for green digital infrastructure in the region. With decisive action today, the nation can lead the way in building data centres that not only power the digital economy but also safeguard the planet for future generations.