Malaysia tightens approvals for data centers based on water and electricity supply

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Malaysia tightens data center approvals

Highlights

The Malaysian government is now assessing approvals for new data centers based on water availability, electricity supply and investors’ financial strength, without imposing a blanket moratorium.
MIDA will assess water supplies with state governments, while discussions with Tenaga Nasional Bhd will determine electricity availability; only states with sufficient water supplies will be allowed to host data centers.
The new requirements include market-rate electricity tariffs without subsidies, and operators must pay for contracted electricity capacity even if their usage is lower, in addition to meeting the minimum 30% local content requirement.

This article was translated from the original. Read the original version by our correspondent here.

New approval requirements for data center projects

As reported by The Edge Malaysia, Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani said the government had no plans to impose a blanket moratorium on new data centers. Instead, it would assess each application based on water availability, electricity supply and the investor’s financial strength before granting approval.

Johari told the House of Representatives during the winding-up debate on Budget 2027 on Wednesday that the Malaysian Investment Development Authority, or MIDA, would work with state governments to assess water requirements, while electricity availability would be evaluated through discussions with Tenaga Nasional Bhd.

He said states without sufficient water supplies would not be allowed to host data centers, even if they had suitable land. This approach indicates that the approval process is now focused more on the capacity of essential resources than on site availability alone.

Implications for utilities and industry investment

The government has approved 117 data centers nationwide, of which 55 are operational, 19 are under construction and 16 have received approval but have yet to begin construction. The remaining 27 projects are at various stages of development, with their electricity needs expected to be met through off-grid arrangements.

To protect Tenaga Nasional’s reserve margin and ensure sufficient electricity supplies for other industries, the government has ring-fenced data centers’ electricity requirements from those of other industrial users. Data centers supplied by Tenaga Nasional will also be charged market rates without subsidies, Johari said.

Operators must pay for the electricity capacity they have contracted, even if actual usage is lower. For example, an operator that contracts 300 megawatts but uses only 100 megawatts must still pay for the remaining 200 megawatts, in addition to meeting the minimum 30% local content requirement for data center-related development.

According to Johari, these measures are intended to ensure that data center investments benefit Malaysia while taking into account the country’s water and electricity resource constraints.

In our previous coverage of the proposed “user-pays” electricity pricing for large users such as data centers, we explained the government’s rationale for ensuring that energy-intensive users bear a fairer share of supply costs. The article also discussed factors driving up generation costs and consumer bills, as well as incentives to use time-of-use tariffs to manage electricity demand and reduce costs during off-peak hours.

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