In Johor Bahru, Malaysia, Winson Lau has always designed contingency strategies for his successful export business. However, the dramatic rise in data centers has caught him off guard. His operations depend heavily on consistent water and electricity supply, and while he has implemented a system that purifies wastewater and a power backup alarm, these measures are not sufficient to compete against the considerable energy demands of the burgeoning data centers in Johor.
The province is rapidly transitioning from virtually no data centers in 2019 to a projected capacity of at least 1.6 gigawatts at any given time. According to recent reports, Johor is now the fastest-growing data center market in Southeast Asia. These large, windowless facilities, which house extensive racks of computers, are power-intensive, relying on elaborate air conditioning systems and significant water resources. As the need for computing power for artificial intelligence grows, experts project that data center power requirements in Malaysia could reach over 5 gigawatts by 2035—about half of the entire renewable energy capacity available in the country as of 2023.
In 2022, fossil fuels accounted for over 95% of Malaysia’s energy resources, according to the International Energy Agency. As the fifth-largest exporter of liquefied natural gas worldwide, the Malaysian government anticipates that upcoming renewable energy initiatives will potentially provide a surplus of energy for substantial projects while continuing to boost exports. Nonetheless, Lau expresses skepticism regarding whether his local business can effectively compete with foreign-backed companies for energy resources, prompting him to consider relocating to Thailand for a new fish farm.
Malaysia is investing in data centers with hopes of economic revitalization. The nation, once considered an emerging economic powerhouse, faced industrial decline following the Asian financial crisis in the late 1990s. The government envisions data centers as a means to modernize the economy and generate thousands of high-paying jobs. However, industry experts caution that the promise of transformation may be inflated. Although data centers occupy large spaces and consume substantial electricity and water resources, they offer fewer job opportunities than anticipated, with larger facilities producing only around 200 jobs at maximum.
Concerns surrounding the extensive resource consumption of data centers have led some researchers, like Sofia Scasserra from the Transnational Institute, to label this trend akin to “digital colonialism.” She draws a parallel between data extraction in less wealthy nations and historical exploitations, noting that while tech companies benefit significantly, they often leave little behind for local economies.
Currently, the demand for data centers is being driven largely by artificial intelligence, with companies seeking to establish larger and cost-effective facilities globally. Rangu Salgame, the CEO of Singapore’s Princeton Digital Group, points out that data centers requiring over 40 megawatts could necessitate land equivalent to seven football fields. Although building in wealthier countries can be prohibitively expensive, Malaysia’s attractive land prices, surplus power supply, and tax incentives have made it a sought-after destination for investment, leading it to become the eighth largest data center market in terms of operations in Asia Pacific.
Malaysia is poised for further growth, potentially ranking among the top ten markets within the next five to seven years. Neighboring Singapore has halted new data center constructions due to pressing energy concerns, allowing Malaysia to fill this gap and attract investments exceeding $31 billion within the first ten months of 2024. In Johor alone, there are currently 22 data centers, predominantly foreign-owned, covering an extensive area of 21 hectares.
Despite the promising outlook, there remain genuine concerns over power and water shortages. Although experts hope that data centers might spur growth in clean energy, the unexpectedly high demand complicates this transition. Malaysia’s tropical climate presents challenges, requiring significantly more resources for cooling than regions previously favored for data centers. Although alternative energy solutions can be implemented quickly, the immediate electrical demands of data centers may be too substantial.
The Malaysian government acknowledges the considerable energy needs of data centers but remains optimistic that Johor’s emergence as a “data center powerhouse” will position it as a key player in Southeast Asia’s digital landscape. Malaysian officials are drafting efficiency protocols for these centers and creating policies directing them to purchase clean energy straight from producers.
