Premium Fees for Data Centers

Global tech companies should expect to pay a premium for access to energy and water to serve data centers in Malaysia, the country’s environment minister has said, as booming demand for artificial intelligence infrastructure puts pressure on resources. Malaysia has emerged as a global hotspot for data centers, the storage facilities that enable fast-growing technologies such as artificial intelligence, cloud computing, and cryptocurrency mining.

The country has attracted more than $16bn in investment commitments over the past year from Amazon, Nvidia, Google, Microsoft, and TikTok owner ByteDance, most of it for data center development in the southern state of Johor, which borders Singapore.

But data centers require huge amounts of energy and water to prevent them from overheating, which has raised concerns among environmentalists as well as Malaysian officials.

Nik Nazmi Nik Ahmad, Malaysia’s minister of natural resources and environmental sustainability, said the government was becoming “more selective” after the recent “huge boom” in data centers had put “a lot of pressure” on the country’s water and energy resources. He told the Financial Times, “We don’t want just any data center, but if it comes with AI or some other cutting-edge technology, then we will consider them.” But he added, “Data is the new oil of the 21st century, so we want to be part of that.”

Malaysia, and Johor in particular, has emerged as a data center hub in recent years thanks to an abundance of cheap land and labor and its proximity to Singapore. Nazmi expressed his expectation that data centers would have to pay a premium for access to water and energy supplies, noting that many were willing to do so in order to operate in the country. Malaysia has also drawn investment thanks to a moratorium in Singapore on new data facilities between 2019 and 2022 over concerns about energy consumption.

Malaysia in 2024 began permitting data center operators to draw energy directly from green power producers, bypassing the grid. Nazmi said the change would support the development of the country’s renewable energy system, as tech companies paid for access to a reliable supply of clean power.

“Because these data centers are willing to pay a premium, they can push the boundaries with regards to renewable energy [and] water recycling in matters that not just general consumers but even normal industries might not be able to because they are not able to absorb the costs.”

There are 22 data centers in Johor, with a further eight under construction, according to research provider Baxtel. Malaysia said earlier in 2024 that there were more than 30 projects at various stages of planning in Johor, though there have been a handful of additional announcements since.

“The potential for data centers in Johor is huge,” said Bryan Tan, a partner specializing in tech at law firm Reed Smith, who added that it currently had capacity for as many as 40 facilities. Johor is aiming to more than double its energy capacity to 2.7 gigawatts by 2027, which could support as many as 90 data centers, Tan said. However, he noted that generating more clean energy is the only way to achieve this.

In response to global concerns about energy usage, big tech companies are increasingly buying power directly from providers or developing their own, backing both traditional renewables such as wind and solar as well as nuclear power. Malaysia is targeting 70 percent renewable energy capacity by 2050, up from 25 percent at present, Nazmi said, with the government examining options including solar and pumped hydro storage. The country has also revised its water tariffs in recent years and was reconsidering energy subsidies as part of efforts to ensure the biggest corporations were paying full price, he added.