JOHOR BAHRU, Malaysia — Winson Lau has always crafted backup plans for his business, but he didn’t foresee the implications brought by the rise of data centers. His export venture in Johor province hinges on consistent water and electricity supplies, as he cultivates a vibrant array of tropical fish in numerous aquariums. Among the gems in his stock are rare albino fish with red spots, valued at up to $10,000 by collectors. Lau has set up an elaborate purification system that utilizes friendly bacteria to recycle wastewater, and he has an alarm that enables a quick transition to emergency power sources if needed.
While Lau’s precautions are commendable, they pale in comparison to the burgeoning demand driven by massive data centers being erected in Johor. The region is anticipated to have at least 1.6 gigawatts of data centers operational at any given time, a staggering increase from almost none in 2019. This rapid development has made Johor the fastest-growing data center market in Southeast Asia, as outlined in a recent report.
Data centers, characterized by their large, windowless structures filled with rows of energy-intensive computers, require substantial electricity and cooling to prevent overheating. As these facilities increasingly support advanced artificial intelligence systems, it is projected that Malaysia’s energy needs could exceed 5 gigawatts by 2035, according to research by Kenanga Investment Bank. This figure represents over half of Malaysia’s renewable energy output in 2023.
In 2022, fossil fuels accounted for more than 95% of Malaysia’s energy production, as highlighted by the International Energy Agency, which also noted that Malaysia is the fifth-largest global exporter of liquefied natural gas. With future renewable projects underway, Prime Minister Anwar Ibrahim expressed confidence in the country’s ability to generate a surplus of energy to support large projects and bolster exports.
However, Lau doubts his business can compete with the vast energy consumption of these foreign-funded data centers. Malaysia is prone to power interruptions due to storms, which have previously resulted in significant losses for Lau, including a 30-minute outage last year that wiped out 300,000 of his fish and cost him over $1 million. He fears that the increase of data centers might lead to even longer outages.
Facing uncertainty, Lau is preparing to relocate his operations to Thailand, actively looking for new sites for his fish farming endeavors.
While Malaysia bets on economic growth derived from the presence of data centers, the nation hopes to harness this potential to modernize its economy and create thousands of high-paying jobs. The country has struggled to escape the middle-income trap ever since the late 1990s, when the industries suffered in the wake of the Asian financial crisis.
Critics, however, argue that the claims regarding the transformative effects of data centers could be exaggerated and that such centers incur significant costs. They consume large amounts of land, water, and electricity while generating fewer jobs than anticipated. According to a report from Good Jobs First, most data centers offer only 30 to 50 permanent jobs, with larger operations only providing up to 200 positions.
Sofia Scasserra, a researcher at the Transnational Institute, cautions that the pursuit of data centers in developing nations can resemble “digital colonialism,” where tech companies benefit disproportionately at the expense of local communities. She argues that the extraction of data offers little in terms of economic returns for these regions, saying, “Data doesn’t even leave taxes.”
Moreover, a limited portion of Malaysia’s data center capacity serves local users. Many facilities connect through submarine cables to service markets in East Asia, China, and Europe, and the majority are operated by foreign corporations, including American and Chinese tech giants.
In the competitive landscape of artificial intelligence, data centers play a pivotal role. Recent moves by the U.S. government to restrict exports of advanced AI chips signal the significance of access to these facilities in Southeast Asia. Such geopolitical strategies may impact prospects for companies like GDS Holdings, which experienced a significant stock drop following the announcement of these regulations.
Currently, the surge in AI interest is propelling further demand for data centers, as companies look for expansive and cost-effective properties for new developments. Rangu Salgame, CEO of Singapore’s Princeton Digital Group, notes that larger data centers can require up to seven football field-sized plots of land and can use enough electricity to power 36,000 average American households.
While rich nations like the U.S. face high land costs for such developments, Malaysia’s relatively affordable land and available power capacity make it an attractive alternative. Predictions suggest that Malaysia could soon rank among the top ten data center markets globally in the next five to seven years.
As a neighboring country, Singapore paused new data center constructions in 2019 due to concerns over energy consumption affecting its limited resources. Malaysia is stepping into this gap, attracting over $31 billion in investments in the first ten months of 2024 alone. In Johor, there are currently 22 data centers occupying over 21 hectares—about 40 football fields’ worth of land, though not all are fully operational yet.
However, the expansion sparks worries about power and water shortages in the future. As reported by experts, Johor is already experiencing strains on its water supply, a challenge that could worsen with the growth of data centers and an increasing population. Observers like Francis Hutchinson point out that the state has recently faced disruptions, and tourism projects may exacerbate water challenges.
As Malaysia confronts this rapidly evolving landscape, officials recognize the substantial energy demands posed by data centers but are optimistic that the rise of this sector will solidify the country as a critical player in Southeast Asia’s digital framework. The government is also working on efficiency guidelines and policies allowing data centers direct access to clean energy sources.
Nonetheless, residents remain apprehensive about future water shortages, reflecting concerns echoed across other developing nations that face similar environmental pressures. The country’s climate vulnerability, including risks of extreme weather and drought, represents a dilemma that complicates the optimistic narrative of technological progress.
