A data centre power play

MALAYSIA appears to be going from strength to strength on the data centre scene, securing new deals and getting approved contracts into play.

But there could be a drawback. Experts are concerned that the aggressive pipeline could burden the country’s power grid.

Not only that, they believe Malaysia needs optimal execution of its planned initiatives to maintain its competitive industry advantage over regional peers.

As of mid-2025, operational data centre capacity in the country reportedly stands at approximately 640 to 700 megawatt (MW) but more than 140 approved projects worth billions of ringgit in investments are in the pipeline.

Looking into 2026, the consensus points to a quadrupling from current levels.

Reports from Arizton Advisory, KPMG, and the Asia-Pacific Data Centre Association signal an approximately 2.5 gigawatt (GW) total installed capacity to be ready by next year.

Power grid concerns

A spokesperson for a listed entity involved in a data centre project in Selangor tells StarBiz 7 that this represents a compounded annual growth rate of 22% to 25% through 2026, fuelled by Malaysia’s artificial intelligence (AI) Roadmap 2021–2025 and incentives like pioneer status tax breaks under the New Industrial Master Plan 2030.

“However, power constraints could cap actual online capacity at 80% to 90% of projections unless renewable or gas hybrids accelerate.

“Realistically, we believe the 2GW to 3GW target by end-2026 is extremely aggressive and unlikely to be met, and a delivery is closer to 1.2GW to 1.6GW of new firm power by 2027,” she says.

She points out that Tenaga Nasional Bhd and the Energy Commission have only committed about 900MW of new gas-fired capacity, coupled with approximately 600MW to 800MW of large-scale solar/battery projects that can be online by late 2026 or early 2027.

“Greenfield AI campuses need reserve power ratios of between 1.5 to two times to an information technology (IT) load and firm 24/7 supply.

“The current grid and backup cannot deliver that at scale without new combined-cycle plants that take 30 to 36 months to build,” the spokesperson cautions:

An IT load is the total amount of electrical power consumed solely by an IT equipment such as a data centre, and the reserve power ratio is the amount of backup or supplemental generating capacity maintained relative to the IT load.

Mohd Sedek Jantan, investment strategist and country economist at IPP Global Wealth, agrees that Malaysia’s data centre pipeline is expanding at a pace that would stretch even a well-prepared electricity system.

Developers, he says, have already secured more than 5.9GW of potential demand through Electricity Supply Agreements, highlighting a striking gap between commercial commitments and physical readiness.

“If 4GW of this capacity comes online by 2026, Malaysia’s system reserve margin, currently near 30%, could fall into the low-teens, a level associated with thinner operational buffers and higher vulnerability to outages.

“A 4GW buildout also equates to 21 to 50 TWh of annual electricity use depending on utilisation and Power Usage Effectiveness, representing 10% to 20% of Malaysia’s non–data-centre electricity consumption,” he stresses.

Mohd Sedek warns that the real pressure point is not national generation adequacy but the ability of Johor and the Klang Valley to deliver firm, high-voltage supply quickly enough.

He says Malaysia’s policy response is starting to acknowledge this mismatch between commercial demand and grid capability, but execution remains the decisive factor.

The Data Centre Framework, he adds, now ties project approvals to credible firm-power plans.

“The growth of corporate renewable Power Purchase Agreements and wheeling arrangements is encouraging, but these mechanisms cannot meet hyperscale reliability standards without battery energy storage systems or fast-ramping gas units to firm intermittent renewable output,” Mohd Sedek says

Targeted grid upgrades in Johor and the Klang Valley, clearer locational planning, and differential tariffs for large users will also be crucial, he says.

Malaysia’s structural advantages, namely lower land and electricity costs and growing subsea connectivity, remain intact, but they will erode if demand outpaces infrastructure, says Mohd Sedek.

How much longer will Malaysia hold a competitive advantage?

The spokesperson with the listed entity believes Malaysia’s competitive edge is still strong but narrowing, before noting that oversupply of data centres is possible in pockets, though not nationwide.

She points out that while Malaysia still offers benefits such as lower land and power costs than Singapore, greater power scalability than Indonesia and Thailand, and proximity to Singapore’s ecosystem which allows for dual-region redundancy, risks are nevertheless emerging.

“Indonesia’s AI-focused push and cheap renewable potential could attract hyperscalers seeking green footprints, while Singapore’s selective moratorium lifts may redirect some demand back to the city-state.

“Thailand’s incentives for AI and cloud clusters could also draw regional deployments,” says the spokesperson.

She feels Johor could also face the risk of timing mismatch, with a significant amount of land banking but not enough power ready in 2025 to 2027, while the Klang Valley could see competition for corporate or retail workloads as enterprise cloud migration matures.

“But on balance, Malaysia’s ecosystem remains the most scalable and cost-efficient hub in the region, as long as grid expansion stays on track,” says the spokesperson.

Mohd Sedek agrees.

He feels these fundamentals give Malaysia a clear total cost of ownership advantage over Singapore, especially in Johor, where latency to Singapore is minimal and land parcels remain significantly more affordable.

“High-voltage tariffs are structurally lower than those in several regional peers, and construction and operating costs remain favourable.

“These attributes have already drawn strong interest from multinational hyperscalers,” Mohd Sedek observes.

However, he again predicts that cost advantage alone is no longer the decisive metric.

As demand clusters intensify, competitiveness is shifting from price-driven to infrastructure-ready, with grid readiness emerging as the critical element.

He stresses that if the Data Centre Framework, the Data Centre Task Force and ongoing renewable-energy reforms deliver predictable connection pathways, and scalable access to firm, low-carbon power, Malaysia is well placed to consolidate its advantage over Singapore and regional peers.

“Singapore’s land constraints and environmental rules mean regional spillover demand will continue to flow into Malaysia,” he notes, before stressing, “...but only if Malaysia can guarantee reliability.”

He warns that if transmission upgrades are delayed, if wheeling and system access charges structures remain misaligned with renewable-integration goals, or if environmental, social and governance commitments outpace the availability of green power and storage, operators may reallocate investment to Indonesia and Thailand, which are rapidly expanding their land banks and liberalising power markets.

“In short, Malaysia enters 2026 from a position of strength, but sustaining that edge requires credible grid reinforcement, firming capacity and regulatory consistency in the face of unprecedented demand growth,” says Mohd Sedek.