Malaysia’s rapid data centre expansion is putting pressure on the country’s power system, with electricity demand outpacing traditional forecasts, according to its energy regulator. Yet some operators remain reluctant to make the long-term commitments needed to justify investment in the infrastructure required to meet that demand.
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Siti Safinah Salleh, Chief Executive Officer of the Energy Commission (EC), said data centres have pushed electricity demand growth to around 10 per cent, compared with the roughly 1.5 per cent to 2 per cent growth that regulators had previously been accustomed to planning for.
She added, however, the problem is not simply whether Malaysia can generate enough electricity, but whether the supply side can be expanded quickly enough, and whether the investments can be recovered over their expected lifetimes.
“Some data centres are willing to come in and work with us on how they stagger the demand moving forward. Some data centres are not,” Safinah said during a panel discussion at the Joint Committee on Climate Change’s (JC3) Journey to Zero Conference in Kuala Lumpur last week.
Grid investments are typically shared investments recovered over a period of 20 years, she explained, adding that some data-centre operators are willing to commit to electricity demand for only 15 years, while others, particularly colocation operators, commit for just five to six years before reviewing their requirements.
“This is where there’s going to be a significant mismatch and problem, there’s a higher risk now in terms of investment recovery,” she said.
From an investment perspective, the issue is becoming particularly significant as data centres can require new infrastructure on a much faster timetable than conventional electricity demand.
Safinah said AI-related facilities can potentially become operational within 18 to 24 months, while new power plants can take five years or more to build amid current supply-chain constraints.
She said the Energy Commission does not discriminate where electricity demand comes from. Instead, the key principle is that demand should “pay its weight” and allow investments in the electricity system to be recovered.
But understanding the nature of that demand is becoming increasingly important, particularly as AI workloads can have very different electricity consumption profiles depending on whether they involve language, graphics or video processing.
“We now need to understand every single load profile because they’re actually quite significant, and therefore the system needs to be ready for that,” she said.
Data centres want greater predictability
Comments from data-centre operators on a following panel discussion underscored the other side of the equation. While operators are willing to commit to renewable energy and support the development of new generation, they seek greater certainty over the cost and structure of electricity procurement.
Spencer Low, Head of Regional Sustainability of Asia Pacific at Google, said the company has moved from matching its annual electricity consumption with renewable energy to pursuing 24/7, hourly matching of renewable electricity.
He said Malaysia’s Corporate Renewable Energy Supply Scheme (CRESS) had helped open up discussions around new renewable procurement models, but more work is needed to make the system predictable enough for long-term investment decisions.
“We operate as a 20-year lifespan. Typically, in other jurisdictions, we’re signing agreements where we know by year 20 what we’re on the hook for, why, what are the mechanisms,” Low said.
For Google, understanding the full cost of electricity is important not only to the company but also to the wider energy system.
It signs 20-year power purchase agreements with renewable energy projects, Low said, because long-term offtake commitments can help make projects bankable. But the company needs visibility over the total cost of the system, rather than just the cost charged by the renewable energy generator.
From left: Azwar Kamarudin, Head of Government Relations, AirTrunk; Chan Chuey Hwye, Head of Digital Enablers Department, Digital Adoption Division, MDEC; Spencer Low, Head of Regional Sustainability, APAC, Google; and Low Chee-Yen, Chief Investment Officer, Gamuda Berhad (moderator), at a panel discussion on sustainable digital infrastructure at the JC3 Journey to Zero Conference 2026. Image: JC3
Azwar Kamarudin, Head of Government Relations at AirTrunk, similarly said although CRESS was a positive initiative, its relatively low take-up rate showed that the scheme needed to be adapted to the realities of data-centre operators.
One challenge, she said, is the cost and utilisation of contracted renewable power, particularly when operators cannot easily sell unused capacity back into the system.
Malaysia introduced a CRESS Acceleration Package, setting the System Access Charge (SAC) for firm green electricity supply at 14 sen per kilowatt-hour (kWh) last month, down from the previous 20 sen/kWh rate. The package also requires a minimum 10-year contract between renewable energy developers and green consumers.
“If you’re paying that high, but at the end of the day you’re not using, they’re also not allowing you to sell it back,” Azwar said, noting that CRESS should offer more bespoke or adaptable arrangements for different types of data-centre operators, depending on their electricity requirements, utilisation and renewable-energy targets.
Grid capacity is not the only constraint
According to Safinah, Malaysia’s existing grid still has sufficient overall capacity to support greater renewable-energy penetration, although there are bottlenecks in specific locations where renewable-energy developers and new demand are concentrated.
The grid is planned roughly five years ahead of capacity requirements, she said, with sufficient headroom built into the system.
However, the concentration of projects in particular locations can create localised constraints. Perak, for example, has attracted significant interest from renewable-energy developers, potentially creating situations where demand for connections exceeds available capacity even though capacity remains available elsewhere.
This also creates a mismatch between the technical and economic aspects of the transition, Safinah said.
As of 2025, Malaysia has already exceeded its previous target of having renewable energy account for 31 per cent of installed capacity by 2030, reaching 31.8 per cent last year. Hence, Safinah said the EC is now reassessing the target with a view to setting a higher ambition.
But expanding renewable generation alone will not solve the problem. She said Malaysia’s predominantly solar-based renewable system needs to be supported by technologies and infrastructure that can make intermittent generation available when it is needed.
“Looking at the cost of generating solar on its own may seem low, but to make solar the equivalent of what is required within the system is actually a much higher cost,” she said, adding that these additional costs would need to be weighed against the economics of the energy transition, including who is willing to pay for them.
