Hong Leong Investment Bank Research has foreseen the data center (DC) growth narrative in Malaysia remains firmly in place in the second half, serving as a strong growth driver for renewable energy (RE) adoption and construction investments in the country.
The research house said in its recent report that the energy-intensive nature of DC is seen to drive sustained demand for RE, aligning with Malaysia’s national targets of achieving 40/70 percent RE capacity by 2035/50, respectively. This requires about MYR 637 billion ($149.81 billion) in new investments.
“Hence, we see the growth trajectory for the RE segment as intact, underpinned by upcoming contract rollouts and fresh quota allocations,” it highlighted.
It is noted that the market is eagerly looking forward to the bidding round of the large scale solar 6 (LSS6) program, initially expected as early as the second quarter.
Although official details are still scarce, assuming a quota size similar to the LSS5 and LSS5+ (2GW each), Hong Leong estimate MYR 10 billion ($2.35 billion) to MYR 15 billion ($3.53 billion) worth of solar engineering, procurement, construction, and commissioning (EPCC) contracts may crystalize over the next 24 months.
For perspective, the combined 4GW quota from the LSS5 and LSS5+ is 28 percent higher vs the total awarded under LSS1-4 and the Corporate Green Power Program (CGPP) from 2016 to 2023; this reflects a meaningful acceleration in Malaysia’s energy transition efforts.
Besides, to support the rapid growth of DC and RE investments, Malaysian utilities firm Tenaga Nasional Berhad (TNB) is working closely with the Energy Commission and PETRA (Ministry of Energy Transition and Water Transformation) to enhance the national power grid, including both the transmission and distribution systems.
Under Regulatory Period 4 (RP4), spanning from 2025-27, TNB is authorized to raise its total capital expenditure (capex) to MYR 42.9 billion ($10.09 billion) to support grid infrastructure development.
Also, Hong Leong anticipates continuous capex growth for RP5 (2028-30).
Concurrently, EC has called tenders for: (i) the extension of power purchase agreements (PPAs) for expiring or expired gas power plants and (ii) the development of new gas power plants with a total capacity of up to 8GW, scheduled for commissioning between 2025-29, to meet the expected surge in electricity demand in coming years.
It is noted that in the first quarter, the market saw TNB adding another 5 new electricity supply agreement (ESA) with 666MW capacity, bringing the total sum to 43 ESA with 6.4GW capacity.
Notably, TNB indicated there is interest for another 6GW of potential new DC projects, which could increase the current total DC capacity to >12GW; this is largely in line with the government’s DC electricity demand projection of 12.9/20.9GW by 2030/40 respectively.
The research house also estimated there is a substantial pipeline of potential DC construction opportunities, with total DC construction value worth 120 ringgit to 180 billion ringgit.
“In our view, this represents a significant addressable market for contractors, even under a conservative scenario where the DC pipeline does not grow further from current levels,” it added.