JOHOR BAHRU, Malaysia — Winson Lau has always planned for emergencies, yet he never anticipated the impact of data centers. Lau operates a successful export business in Johor, where he breeds a variety of tropical fish, including rare albino varieties that can fetch prices of up to $10,000. To ensure business continuity during outages, he employs a sophisticated system that purifies wastewater and includes a reliable backup power switch. Despite these precautions, they cannot compete with the extensive energy and water demands of the massive data centers emerging in Johor.
Since 2019, the province has witnessed phenomenal growth in the data center sector, now on track to support at least 1.6 gigawatts of data center capacity. This rapid development positions Johor as the fastest-growing data center market in Southeast Asia, according to a recent report. Data centers, characterized by their large, windowless buildings filled with rows of high-powered computers, consume vast amounts of electricity and require robust air conditioning systems powered by pumped water. Researchers predict that by 2035, the energy need for data centers in Malaysia may soar to over 5 gigawatts, representing more than half of the nation’s renewable energy capability in 2023.
The International Energy Agency indicates that over 95% of Malaysia’s energy was sourced from fossil fuels in 2022. Currently, Malaysia ranks as the fifth-largest global exporter of liquefied natural gas, and the Prime Minister has expressed optimism about the country’s ability to support large projects and maintain energy exports through upcoming renewable initiatives. However, Lau remains skeptical about his business competing with these foreign-funded data operations, especially after having experienced the detrimental effects of power outages, including one incident in the past year that resulted in the loss of 300,000 fish, costing him over $1 million. His concerns are growing regarding the potential for data centers to extend power outages.
In light of this competition, Lau is planning to relocate his operations to Thailand in search of a new site for his fish farming business. “The big data centers are coming, and there is a power shortage,” he stated. “It’ll be chaotic.”
The Malaysian government believes that the potential economic benefits derived from data centers outweigh the associated risks. Once celebrated as an upcoming economic powerhouse, Malaysia suffered severely during the late 1990s Asian financial crisis and has struggled to escape the middle-income trap since. Officials hope that the data center industry will help modernize its economy while generating thousands of high-paying jobs.
However, experts caution that the claims regarding the transformative power of data centers may be overstated, particularly in terms of job creation. Research has indicated that most data centers offer only 30 to 50 permanent positions, while larger facilities may employ around 200 individuals. Some analysts, like Sofia Scasserra from the Transnational Institute, have drawn troubling parallels between the exploitation of resources for data extraction in poorer countries and historical colonialism, fearing that those leveraging data resources could mirror the adverse impacts seen during the silver mining era in Bolivia.
Interestingly, much of Malaysia’s data center capacity is aimed at international markets rather than domestic users. Through extensive submarine cable networks, these data centers service areas including East Asia, China, and Europe, predominantly managed by foreign companies such as America’s Equinix and Microsoft, alongside China’s GDS Holdings, which collaborates with major tech corporations like Alibaba.
Compounding these issues are the geopolitical tensions surrounding AI technology. The U.S. administration has proposed restrictions on the export of advanced AI chips to limit access for China and other rivals, potentially impacting companies operating data centers in Southeast Asia and the Middle East. Following the announcement, GDS Holdings experienced a significant drop in its stock price, indicating the sensitive nature of these investments amid changing regulatory landscapes.
The burgeoning artificial intelligence sector necessitates even more data centers as tech firms pursue larger and more affordable operating sites globally. Rangu Salgame, CEO of Singapore’s Princeton Digital Group, noted their plans to construct a substantial 170-megawatt facility in Johor. The demand for these expansive data centers often translates to needing land equivalent to several football fields, which presents construction challenges in established economies like the U.S., where land is increasingly costly.
With Malaysia’s affordable land, excess energy capabilities, and favorable tax incentives, it has become a prime location for data centers, emerging as the fastest-growing data center market in Asia Pacific. Current assessments position Malaysia as the eighth-largest in operational capacity and on track to potentially break into the top tier within the next five to seven years.
Despite this growth, neighboring Singapore has halted new data center construction due to resource strains, redirecting growth efforts towards building sustainable infrastructure. With a record of $31 billion investments attracted in just ten months of 2024, Malaysia’s Johor already hosts numerous foreign data centers covering substantial land areas.
While these new facilities are often unremarkable in design, evidence of their presence includes security measures like barbed wire and surveillance systems. The rapid construction changing Johor’s landscape raises questions about the long-term viability of the energy resources in the region.
Experts warn that Malaysia’s climate and increasing demand pose challenges to adequately meeting the energy requirements of data centers, raising alarms about potential water shortages. Concerns are mounting amongst locals about the environmental and resource pressures resulting from these intense operations, with environmental observers noting that Johor has recently faced water disruptions exacerbated by population growth and tourism pressures.
Authorities acknowledge the significant energy demand posed by these centers but maintain confidence in Johor’s future role in Southeast Asia’s digital landscape. Policymakers are drafting efficiency guidelines and strategies for data centers to access clean energy sources. Yet, persistent worries about water shortages hint at the complex balance between growth and sustainability as the region progresses.
