MBSB Research has maintained its positive stance on Malaysia’s renewable energy (RE) subsector, as accelerating data center electricity demand is driving a broader power capacity upcycle across generation, grid infrastructure, RE and battery energy storage system (BESS).
The research house said in a note on Monday that it expects the 2027 to 2029 power catch up period to support stronger utilization of existing generation assets, sustained grid capex and faster additions of gas, solar and storage.
It is noted that Malaysia’s data center boom is entering a new phase. The pipeline of announced investments is now increasingly translating into actual electricity consumption.
As at mid Aug-26, data centers account for 9.28 percent of total electricity consumption.
“We note that this has risen from some 6 percent in the first half of 2026, where data centers consumed some 4TWh of electricity,” MBSB said.
During the recent Energy Regulatory Insights (ERI) 2026, it was reiterated that the data center share of Peninsular electricity demand could eventually reach 35 percent by 2035.
“We view that there is a power catch up period as firm generation cannot be added nearly as quickly as data center capacity,
“No new gas-fired capacity is expected in 2027, while the next major wave of new generation is concentrated from 2028 to 2031, indicatively at 8.3GW，” said MBSB.
During the same period, about 5.6GW of coal plants are expected to be retired.
In the interim, the system will have to rely more heavily on its existing generation fleet, potential power purchase agreement (PPA) extensions, additions of renewables, storage and other flexibility resources, according to the research house.
“We see 2029 as the intended supply inflection point, although project delays could prolong the catch up period up to 2031,
“This may be caused by factors such as delays in turbine procurement, which is currently facing a global shortage, and others, such as the slip in timelines for financing, construction, and transmission connections,” it said.
It is noted that Economy Minister Akmal Nasrullah Mohd Nasir said 9GW of gas generation is required by 2032.
The Energy Commission (ST) drilled this down further to about 8GW required during the 2029 to 2031 period.
This is broadly in line with ST’s indicative schedule, which expects new capacities of 500MW in 2028, 4.3GW in 2029, 1.4GW in 2030 and 2.1GW in 2031, making up a total of 8.3GW.
During this period, 5.6GW of coal plants are also expected to go offline upon the expiry of the PPAs.
“Therefore, rising data center loads will need to be accommodated through the current generation fleet, new RE capacities, BESS, and demand management until the new gas plants begin entering from 2028 onwards. This could see higher utilization of efficient existing combined-cycle gas turbine (CCGTs),” said MBSB.
The Ministry of Energy Transition and Water Transformation (PETRA) and ST seemed to have pre-empted this, with about 4.7GW of brownfield extensions under NewGen25, mostly until Dec-29, plus an additional capacity of 150MW as they buy time for the new gas generations to arrive.
“We remain cognizant of the importance of decarbonization, but we want to put forth the view that the option to extend the PPA of coal plants should remain open, at least until sufficient gas capacities come online,” said MBSB.
While Malaysia has committed not to extend existing coal-fired power plants, on top of the commitment to stop building new ones, this target was designed around an earlier demand trajectory, at a point where the current data center load growth was not yet as apparent.
According to the research house, the data center boom does not invalidate decarbonization, but it increases the value of optionality during this transition period.
“We believe that extending selected coal assets does not represent an abandonment of Malaysia’s net-zero ambitions if the extensions are temporary, undertaken for system-security reasons,” it noted.
ST is currently leading a comprehensive study to develop a transition strategy for existing coal plants, ranging from early retirement through bidding, retirement in line with existing PPA expiries, mothballing, repurposing, conversion into flexible units for security, and ultimately extensions. The PPA last coal plant is expected to expire in May-44.
MBSB also highlighted as at Jun-26, Malaysia’s utility firm Tenaga Nasional Berhad (TNB) has a total 61 secured projects representing 8.35GW of maximum demand.
Of this, 42 projects totaling 5.65GW are already connected to the system, although actual load utilization remains much lower at 1.26GW, as power consumption will ramp progressively as completed facilities fill up and customers deploy information technology (IT) equipment.
A further 16 projects, or 2.21GW, are under construction, while another 0.49GW across three projects have signed electricity supply agreement (ESA).
Johor remains the key growth center, accounting for 29 of the 61 secured projects and around 5.6GW, or 67 percent, of total secured capacity.
“While data centers are expected to anchor the medium to long term electricity demand growth, we expect the authorities to be more selective on the type of data centers being approved, with a preference for artificial intelligence (AI) data centers in order to better manage the surge in power demand,” said MBSB.
The research house also does not discount the possibility of a “bring your own power” (BYOP) requirement being introduced.
Under the requirement, a hyperscaler or AI data center developer may need to demonstrate where that electricity will come from and how the necessary infrastructure will be delivered.
This could involve on-site generation, partnerships with power producers or the Corporate Renewable Energy Supply Scheme (CRESS), to name a few.
Thailand’s abrupt intervention serves as a cautionary tale, when it suspended the construction of 49 data center projects and frozen the approval decisions for 117 more while it develops tighter nationwide rules covering electricity, water, location and economic benefits, said MBSB.
A potential BYOP requirement in Malaysia could therefore be viewed less as a restriction on data center growth and more as a preventive measure, it noted.
The recent DayOne-TNB GenCo partnership provides an early example of how this could work in practice, with both parties exploring up to 1.5GW of dedicated on-site generation, alongside BESS, for DayOne’s new Greater Kuala Lumpur data-center development.
Ireland is among the countries that have the BYOP policy in place since Dec-25. Its Commission for Regulation of utilities require new data centers to provide generation or storage, either onsite or local in proximity to match the requested data center maximum import demand capacity.
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