Will Malaysia's AI data centers be capable of adopting environmentally friendly practices?

Malaysia is rapidly becoming a hub for data centres in Southeast Asia, attracting tech giants such as ByteDance, Alibaba, Google, and Microsoft. This growth is driven by the country's cheap electricity, abundant land, and skilled labour force.

However, this boom poses challenges for the Malaysian government, as data centre electricity demand is expected to surge from 9 terawatt-hours (TWh) in 2024 to 68 TWh by 2030. In 2024, 81% of Malaysia's electricity came from fossil fuels, much of it coal-fired, posing a significant challenge to the government's National Energy Transition Roadmap, which targets 70% renewable capacity by 2050.

To address this issue, Malaysia's Corporate Renewable Energy Supply Scheme (Cress) has been implemented, although it has imposed added fees on producers, causing a premium for businesses transitioning to renewable energy. Despite this, tech companies are willing to pay a premium for renewable energy and water-recycling systems, enabling them to push boundaries in ways that many other industries cannot afford.

Data centres can drive demand for clean power and invest in innovative energy solutions. Ewan Lusty, a director at Flint Global, highlighted this point, stating that Malaysia will need to maintain a delicate balance to avoid antagonizing either the US or China. This balance is crucial, as a Chinese company was accused of indirectly accessing advanced, US-designed microchips through Malaysian data centres, leading to potential US tariffs on Malaysian goods.

The US announced that Malaysia will face 25% tariffs from August, but trade talks between the two nations are ongoing. Meanwhile, unlike Singapore, which imposed a moratorium on new data centres from 2019 to 2022, Malaysia is not likely to slow down its expansion into data centres.

In Johor, data centres are being established, with AirTrunk's rooftop solar project at its JHB1 campus generating only 1 MW, which is less than 1% of the facility's 150 MW load. Shabrina Nadhila, a Southeast Asia energy analyst at Ember, warned that the rise of energy-hungry server farms could increase emissions and lock in fossil-fuel infrastructure.

However, Sara Loo describes the illusion of progress created by highly visible but marginal solar installations in data centres. Facility operators may face pressure to meet environmental, social, and governance (ESG) targets from global investors and clients. Malaysia's environment minister Nik Nazmi Nik Ahmad stated that the data centre boom can support the country's renewable-energy system.

Singapore's successful policy approach includes grants for green building upgrades and research aimed at boosting data centre efficiency. This strong regional example could guide Malaysia in its journey towards a more sustainable data centre industry.

In conclusion, while the data centre boom brings economic benefits to Malaysia, it also presents challenges in terms of energy consumption and environmental impact. Balancing these factors will be crucial for the country's future as a leading data centre hub in Southeast Asia.