Malaysia's fear of resources tests Asia's fastest-growing data centre

Malaysia, which has surpassed Singapore as the fastest-growing hub for data centres in the region, is now under increasing scrutiny due to the resource debate that's spreading to emerging Asia.

The protests against a data center complex at the southern tip of Johor, the epicenter of the boom in the state, were the first ever of their kind to be held in the country. The burden of the communities in Selangor has been politicised.

Two years ago it was all about building capacity, said Cheam Tat Inn. He is the managing director of Equinix's Malaysian data centre.

The conversation is now more about how you will use energy. Are you considering renewables? "They want to know how you plan to grow responsibly and sustainably."

This is a significant shift for a nation -- and a regional -- that has been aggressively courting hyperscalers in an effort to secure AI infrastructure investments, by offering lower land prices and affordable power.

The rapid growth of the data centres industry in emerging Asia is similar to that experienced by developed markets such as Ireland, The Netherlands, and Singapore several years ago when concerns were raised about the competition between homes and farms for electricity and water.

While global hyperscalers, along with data center developers and operators, are making massive investments to power AI services that require increasingly large amounts computing capacity, they also place a greater emphasis on sustainability in order to secure "social license" from local communities. The government is also tightening the standards in order to retain public support.

China's ZDATA said its data center in Johor runs solely on wastewater treated. It is also finalising a renewable-energy deal with Tenaga Nasional, to reduce the strain on the electrical grid. Japan's NTT announced that its data center will use a closed circuit cooling system to reduce water consumption. Bain Capital's Bridge Data Centres reported that solar energy is responsible for more than 50% of its power supply in the state.

Chris Howard, an executive director with the consultancy JLL, said: "Data centres are popular because everyone wants high-speed data. We all use more data." This is in stark contrast to local community acceptance due to perceptions of higher energy costs and water consumption -- or just ugly buildings.

JLL estimates that rising objections by residents -- as well as grid?connections, infrastructure equipment and other factors -- contributed to delays of up to three months in 57% of global projects last year.

RENEWABLE CONTENT, LOCAL ENERGY

Johor requires that new projects show their electricity source. Renewable energy is becoming a requirement for approval. The state banned two types of data centres that use a lot of water. They can require up to 50 million litres of water per day, which is equivalent to 20 Olympic swimming pool.

Ng Sze Han is the executive councillor of Selangor for investment, trade, and mobility. He said that Selangor does not ban proposals outright but rather vets them to ensure they meet global standards in energy and water efficiency. Selangor's approach includes requiring 30% of local content for areas like integrated circuit design and cool systems.

Ng stated that "these are highly capital intensive projects but they have historically delivered limited spillovers to the local economy."

In April, the Socialist Party, an opposition party, singled out for criticism a project worth 1.75 billion Ringgit ($428 millions) in the state, claiming that it was a hyperscale project which prioritized corporations above communities.

Savills analyst Nicholas Tuan said that with Malaysia tightening up its scrutiny, investment could start to flow into other countries in this region.

He said that "we're already seeing increased activity and inbound inquiries for markets such as Thailand, where larger scale campuses are being built in southern Thailand."

He added that Johor, in particular, retains its appeal for being "among the most stable" when it comes to infrastructure, government assistance, and the availability of resources.

SINGAPORE SPILLOVER

Johor, which had been building data centres for a decade, was the biggest beneficiary, receiving $35 billion, of Singapore's moratorium from 2019-2022 on new data centers. This is after it ran out of land, water, and electricity. Amazon, Microsoft and Chinese firms Tencent & Alibaba invested heavily. According to JLL, even with stricter vetting in 2024, state-planned data centre capacity – including projects both in the pipeline or under construction – will see an eightfold increase from current levels.

According to Malaysia's Central Bank, a 50-megawatt computer centre can consume the same amount of water and electricity as 2,200 households each day.

In February, residents in Iskandar puteri, a southern Johor township protested against the construction of ZDATA’s data centre.

Many expressed concerns about the strain that could be placed on the water supply. Some complained of a drop in pressure before the 300 megawatt facility was 'online. ZDATA said that its compound wasn't the cause of the water problems.

Not all of the concerns centered on competition for resources.

The land developer Tropicana firstwide was prompted by complaints about dust coming from construction sites to provide two free car wash stations for local residents.

Another common objection is more difficult to deal with.

Another Iskandar Puteri local said, "I bought a home here because I liked the greenery surrounding the property and the hills." "Now, the land has already been flattened for the data centers."

(source: Reuters)