MALAYSIA is racing toward a digital future – one powered by a booming data centre industry projected to consume over 20 GW of electricity by 2040, as forecast by the Ministry of Energy Transition and Water Transformation (Petra).
This explosive growth is unlocking vast economic potential but also highlighting the way that Malaysia must balance the demands of a thriving digital economy with the environmental challenges it brings.
According to Deputy Investment, Trade and Industry Minister Liew Chin Tong, Malaysia’s data centre industry has witnessed substantial growth, with investments totalling RM184.7 billion from 2021 to December 2024 thanks to the increasing demand for cloud computing, artificial intelligence (AI), and digital services. Our proximity to Singapore, which imposed a moratorium on new data centres due to resource constraints, has further enhanced Malaysia’s appeal.
Local communities, particularly in Johor and Selangor, are seeing new employment opportunities and infrastructure development as global players establish operations in these regions. Reuters reported that the investment made by one of the world’s largest technology companies in Malaysia is expected to generate approximately US$10.9 billion in new revenues over the next four years and create more than 37,000 jobs, demonstrating the sector’s potential to drive national growth.
The economic benefits are clear. Faced with significant opportunities for growth, it’s all the more important that we carefully consider our responsibilities to the wider community, and the impacts on the places we live and work.
The impact that data centres pose to the environment needs to be carefully managed. Malaysia’s Ministry of Energy Transition and Water Transformation has projected that electricity demand from data centres, which require continuous power and extensive cooling systems, will reach 7.7 GW by 2030 and could surge to 20.9 GW by 2040. To mitigate these issues, the government has implemented several forward-looking initiatives. The National Energy Transition Roadmap (NETR), introduced by the Ministry of Economy, aims to achieve 70% renewable energy capacity by 2050, an ambitious leap from the current 25%. Additionally, the Corporate Renewable Energy Supply Scheme (CRESS) allows data centre operators to source energy directly from green power producers, bypassing the national grid.
The significant amount of water required to cool data centres have also raised alarms. The National Water Services Commission (Suruhanjaya Perkhidmatan Air Negara/SPAN) warns that unchecked water usage by data centres could contribute to a water crisis. In response, several strategies have been adopted to manage water consumption. Water Usage Effectiveness metrics help track and promote efficient water management practices within data centres while companies have collaborated with state-owned entities to develop recycled water supply schemes, reducing reliance on potable water.
There is also growing interest in alternative cooling technologies, including immersion cooling, which can significantly lower both water and energy consumption. These are important strategies, and it is critical that we continue to build on this work to ensure that we are balancing our economic growth with the urgent need for environmental stewardship.
We know that collaboration between public and private sectors is an essential part of ensuring responsible growth of any sector, so it’s great to see that the government has taken a proactive stance in regulating and guiding the development of data centres. The Ministry of Investment, Trade, and Industry’s guidelines outline best practices for energy and water efficiency, safety, scalability, and the adoption of smart technologies. Environmental Impact Assessments are mandatory for projects with significant ecological implications to ensure new data centres consider and mitigate environmental impacts. Government incentives, including potential tax breaks, also encourage green practices such as renewable energy integration, advanced cooling systems, and efficient water usage.
Beyond government action, industry stakeholders are actively contributing to responsible practices within the data centre ecosystem. The YTL Group 2024 Sustainability Report highlighted that YTL Green Data Centre Park in Johor integrates advanced technologies and energy-efficient designs including solar-powered infrastructure, advanced cooling systems, and rainwater harvesting systems to minimise environmental impact while ensuring high performance. With an expected capacity of 500MW, the park stands as a regional benchmark for balancing technological advancement with environmental responsibility. We have also seen leading global data centre providers focusing on energy efficiency to meet their carbon neutrality goals and investing in rooftop solar panels and virtual power purchase agreements for solar farms.
Addressing the dual priorities of economic development and environmental sustainability requires a multi-pronged approach. One potential solution is the development of responsible data centre certification programmes. By creating a national certification that evaluates facilities on their energy efficiency, water usage, and carbon emissions, the government can incentivise more sustainable choices. Another opportunity lies in regional collaboration, where Southeast Asian nations work together to share technologies, regulatory best practices, and renewable energy resources.
Investment in research and development is also crucial. Government grants and private sector initiatives can support the creation of advanced cooling systems, AI-driven energy management, and water recycling innovations tailored to Malaysia’s tropical climate. Lastly, transparent reporting and environmental accountability must be prioritised to ensure measurable progress and public trust.
Malaysia stands at a pivotal crossroads: the path forward must blend innovation with responsibility. By fostering collaboration across government, industry, and academia, Malaysia can lead Southeast Asia not just in digital capability, but in responsible digital leadership. Achieving this vision will require actionable policies, measurable standards, transparent reporting, and shared accountability.
This article is contributed by Adlie Ali (pic), Malaysia Science, Industry & Technology Business Leader, Arup.
