While the new power tariffs may lead to short-term challenges for data center projects in Malaysia, the country’s dominant position in emerging Southeast Asia is unlikely to be dramatically altered, as demand for cloud computing remains strong, BMI Country Risk and Industry Research said Thursday.
The research house said in a note that data center operators within Malaysia are expected to face increased costs, as the newly announced power tariffs on data centers over 100MW look to tax the power hungry facilities within the region.
Reportedly, this could increase energy costs by 10-14 percent. That said, as Singapore continues to struggle with land and power scarcity, Malaysia (particularly Johor) is expected to continue to capitalize on excess demand in Southeast Asia.
“This development is expected to have a negative impact on data center projects in the short-term, as platforms put their pipelines on hold, in anticipation of further clarity on the price bands being employed to calculate the power bills,
“This risk is expected to be greatest for data centers targeting artificial intelligence (AI) applications, as they also look to balance the impact of a potential restriction of US-supplied GPUs,” said the research house.
According to the research house, there are several data center platforms that have projects in the pipeline greater than 100MW, hence, the impact is expected to be significant for those already operating.
These include DayOne, EdgeConnex, Yondr, AirTrunk, STT and Vantage.
“We do not expect these platforms to completely exit the market; rather, platforms will adapt their pipelines coming to market to comply with sustainability-linked standards,” it noted.
In the medium term, BMI does not expect this development to significantly alter Malaysia’s dominant position in emerging Southeast Asia, as this would primarily impact high-density AI-related use cases, while demand for cloud computing remains strong.
“However, investments may shift to surrounding markets, such as Indonesia and Thailand, as investments gradually divert to less-regulated peer markets that can still service digitally-mature economies,” it said.
However, it is worth noting that some Malaysian data center platforms will look to address demand from non-AI related use cases, or potentially less intensive AI use cases, in order to bypass the tariff, it added.
“This development is expected to accelerate the adoption of renewable energy, and the investments made into sustainability,” it said.
BMI also highlighted that the adoption of renewable energy sources is necessary, as power continues to be the leading issue for many markets.
For instance, Equinix has incorporated sustainability into its growth strategy, achieving its lowest annual average power usage effectiveness (PUE) reading in 2024, at 1.39.
This is while its renewable energy has sustained at 96 percent in 2024, higher than the 92 percent in 2019 (baseline).
As power purchase agreements (PPAs) and renewable matching commitments become increasingly important to data center firms’ operating models, BMI noted future construction and facility delivery should be planned in tandem with power projects.
“Consequently, data center operators with strong sustainability credentials will be in possession of a considerable competitive edge against some rivals,” it said.