Malaysian data centres face higher electricity costs and unclear pricing
The operators of energy-hungry data centres in Malaysia are scrambling to reassess costs after steeper-than-expected power tariffs kicked in on Tuesday, industry players said, clouding prospects for the Southeast Asian hub of digital investments.
Malaysia's competitive electricity rates, which make up the majority of data centre operating costs, have made it a magnet for companies such as Microsoft and Google, who invest billions in Malaysia.
An industry official and government official both said that the tariff hike announced in December could increase electricity costs between 10% and 14%, before any surcharges are applied to major consumers like data centres.
The bands that are used to calculate the power bills under the tiered price system is a key factor in creating uncertainty. According to industry experts, most major cities will fall into the ultra-high voltage tariff category.
Gary Goh is the founder and director at data centre consultancy Sprint DC Consulting. He said that many investors are not prepared for the magnitude of the increases.
He added that a 100 megawatt (MW), facility could result in an extra $15 to $20 million a year, without taking into account fuel surcharges.
The government will announce a monthly fuel surcharge that reflects the changes in fuel and foreign exchange rates. Tenaga Nasional Berhad, the state grid operator, announced on Tuesday that this month's surcharge is zero.
Malaysia will see the fastest growth in data center power demand in the region, with a jump from 7% to 21% in 2027, according to a report published in May by Bain & Co, Google, and Singapore's Temasek.
According to Cheam Tat Inn of Equinix's Malaysian branch, the new tariff structure will see operators of large data centres paying a larger share of grid costs.
Cheam explained that if you have a large data center, you will pay a larger share of infrastructure costs or distribution network expenses.
Cheam, who said that Equinix has two data centres located in Malaysia, had been looking into alternative energy providers in anticipation of rising tariffs.
Tenaga declined comment and referred questions to Malaysia's Energy Commission. The commission did not respond immediately to comments. Anwar Ibrahim, the Prime Minister of Malaysia, has justified these increases by claiming that they are necessary to increase social spending.
Malaysia has used lower electricity prices and a stable grid to attract investment in data centers.
Mahadhir Aziz is the president of Data Centre Association of Malaysia. The association includes firms like Bridge, AirTruck, DayOne and Equinix.
He added that "the government would need to examine this issue now, at the very least on a regional basis."
Data centers and digital infrastructure businesses can still reconsider their investment, even if they have already invested in buildings or land here. Reporting by Ashley Tang in Kuala Lumpur and Sudarshan Varadan in Singapore. Additional reporting by Michele Pek. Editing by Tony Munroe, Clarence Fernandez and Tony Munroe.
(source: Reuters)
