Rapid data center expansion in Malaysia (A3 stable) will drive an increase in electricity demand over the next ten years, requiring substantially higher investments across the power sector, Moody’s Ratings said on Thursday.
The rating agency said in a report that the data center growth in the country will be supported by competitively priced and readily available power, supportive government initiatives and spillover demand from Singapore (Aaa stable).
The data center-led demand growth will be a credit positive in the long term if utilities can execute generation, transmission and distribution projects effectively.
According to Moody’s data center expansion underpins structural growth in power demand.
Data center power consumption in Peninsular Malaysia is projected by the government to grow to 31 percent of total consumption by 2035, up from 4 percent in 2025 and 6 percent in the first half of 2026.
This underpins long-term electricity demand growth, although the scale and pace of growth will be subject to market and execution risks.
Meanwhile, for Peninsular Malaysia, Moody’s expects electricity demand to grow at a compound annual growth rate (CAGR) of around 5.8 percent over the decade, up from 2.5 percent over 2015-25.
The structural growth in electricity demand is mainly driven by increasing demand from data centers.
The separate tariff category for data centers and demand- based charges introduced in 2025 should facilitate targeted cost recovery from the sector.
According to Moody’s, actual load drawn by data centers reached 1.26 GW in June 2026, although this is below the aggregate declared demand by data centers.
The scale and pace of demand growth also remain subject to execution and market risks, including access to land and water, permits and financing.
In addition, the utilization of contracted capacity will also depend on the pace of server deployment and ramp-up of workloads by hyperscalers.
Operators may defer or resize investment plans in response to changes in global artificial intelligence (AI) and cloud demand, chip export restrictions, or if project economics weaken because of higher costs or changing regulatory requirements.
In the meantime, Moody’s said financial leverage of the rated utilities will rise during the
development phase, reducing financial headroom.
According to the rating agency, financial leverage will rise. While rated utilities are well positioned to benefit from the investment cycle, elevated capital spending will entail execution and funding risks and raise financial leverage during the development phase.
Tenaga Nasional Berhad (TNB, A3 stable) and Sarawak Energy Berhad (SEB, A3 stable) will play significant roles in expanding Malaysia’s power infrastructure to support the demand growth.
TNB benefits from a cost-recovery framework that supports recovery of regulated capital investments over time, while SEB could benefit from increasing electricity exports from Sarawak.
Moody’s also highlighted that meeting future demand growth will require careful planning and execution.
Based on the government’s projected data center related electricity demand of around 73 TWh by 2035, the rating agency estimated that at least 14-17 GW of additional capacity will be required by then, up from Peninsular Malaysia’s installed capacity of 28 GW in 2025.
It noted that at least 14-17 gigawatts (GW) of additional installed generation capacity, or MYR 80 billion ($19.52 billion)-MYR 95 billion of investment, will be required by TNB and independent power producers (IPPs) over the next 10 years to meet the incremental demand.
It opined that delays in commissioning power infrastructure could compress reserve margins and weigh on supply reliability, while cost overruns or delays to generation projects could put pressure on the credit quality of TNB and IPPs.
“Power purchase agreement (PPA) extensions with existing generators should support near-term supply while new capacity is being developed,” it said.
While reserve margins in Peninsular Malaysia remained healthy at 25 percent as of 2025, Moody’s expects reserve margin headroom could narrow over the next three to four years despite these measures, as electricity demand growth outpaces the commissioning of new capacity additions.
The government expects peak demand to grow at a CAGR of 5.1 percent over 2026 to 2035.
Beyond meeting the incremental demand growth, Malaysia’s power sector will also need to replace a significant volume of aging generation capacity.
Around 13 GW of generation capacity is scheduled to reach PPA expiry over 2026-2035, including 7 GW of coal-fired and 6 GW of gas-fired capacity.
Moody’s also said that maintaining a social license to operate will become more important for data centers.
It noted data center operators will increasingly need to demonstrate efficient power and water usage to reduce execution risks.
“While the need for firm baseload capacity will keep gas relevant as a transition fuel, sustainability targets among data center operators could catalyze growth in corporate PPAs, renewable energy generation and storage solutions as well as behind-the-meter arrangements,” it added.
It is noted that Malaysia has emerged as one of the leading data center hubs in Southeast Asia. The country’s data center capacity is concentrated in Johor, Cyberjaya and Kuala Lumpur, supported by strong connectivity, access to power infrastructure and proximity to demand centers.
Johor accounts for around 80 percent of the country’s operational information technology (IT) capacity.
Growth in Johor has been underpinned by available land and cost advantages compared to Singapore’s constrained market, as well as its proximity to Singapore, which positions Johor as a prime location for hyperscalers seeking capacity to serve regional demand.
Data center development in Sarawak remains nascent relative to the established clusters in Peninsular Malaysia, and its development will depend on the Sarawak government’s strategic direction and commercial considerations.
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