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Business Times
a day ago
- Business
- Business Times
Malaysia's data centre dreams hit by tariffs, chip ban fears
[KUALA LUMPUR] Rising electricity tariffs and the proposed US ban on artificial intelligence (AI) chip exports to South-east Asia are raining on the parade of Malaysia's booming data centre sector, as the dual pressures force hyperscale operators to reassess the country's value proposition as a digital investment hub. Still, some observers reckon Malaysia's dominant position in emerging South-east Asia is unlikely to be dramatically shaken, as demand for cloud computing remains robust. While industry experts point out that the US move to curb AI chip exports from Malaysia – part of efforts to stop suspected smuggling into China – is still a draft and remains speculative, its chilling effect, combined with a sharper-than-expected power tariff hike just this month, is already cooling the gold rush. 'Malaysia has seen some slowdown as a 'gold-rush' phenomenon in 2023 and 2024, which probably led to some point of diminishing return,' said Gary Goh, director and founder of data centre advisory firm Sprint DC Consulting. He added: 'Within Asia-Pacific, locations such as Thailand, South Korea and Japan have seen a lot of investment this year.' Power-hungry data centre operators in Malaysia are facing higher costs with the newly announced electricity tariffs targeting facilities with capacities above 100 megawatts (MW). According to reports, the move could drive energy costs up by as much as 10 to 14 per cent. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up For a typical 100-MW hyperscale facility and before the recent tariff restructuring, this translates to an annual energy bill of about US$130-150 million in Malaysia, noted Goh, adding that the new tariffs could push electricity bills up by 10 to nearly 16 per cent for a data centre running at average utilisation. 'This development is expected to have a negative impact on data centre projects in the short term as platforms put their pipelines on hold, in anticipation of further clarity on the price bands being employed to calculate the power bills,' said BMI in a recent report. 'This risk is expected to be greatest for data centres targeting AI applications, as they also look to balance the impact of a potential restriction of US-supplied graphics processing units,' it continued. Several major operators with projects exceeding 100 MW include DayOne, EdgeConnex, Yondr, AirTrunk, STT and Vantage, according to the research unit. 'We do not expect these platforms to completely exit the market; rather, platforms will adapt their pipelines coming to market to comply with sustainability-linked standards,' said BMI. Like Goh, BMI noted that investments could potentially shift to surrounding markets, such as Indonesia and Thailand, as investments gradually divert to less-regulated peer markets that can still service digitally mature economies. Added layer of uncertainty According to Goh, the recent tariff hike compounds existing cost pressures. When Malaysian sites commit to 24/7 renewable energy coverage to meet environmental, social and governance requirements, developers must underwrite 100 per cent of the renewable output while also paying for conventional standby capacity. Goh noted that renewable energy often commands a premium, depending on oil price cycles, workload predictability, and whether the source is onsite or offsite – especially when compared to the current five-year low of conventional floating power prices. 'Malaysia's power pricing volatility adds another layer of uncertainty for operators planning long-term power purchase agreements. Fuel surcharge jumped from 3.7 sen per kilowatt-hour in 2022 to 20 sen in 2023 – a 16.3 sen increase,' he noted. The shine remains Between 2021 and 2024, Malaysia attracted 2 to 5 gigawatts worth of investment inquiries, led more by its proximity to Singapore, political stability, and whole-of-government support than by competitive electricity rates, Goh said. Immediate-term cost pressures aside, he stressed that data centre investments follow a different timeline than typical commercial decisions. 'Power prices are dynamic and short term; data centre investment is a 25-year decision (commitment),' he said, noting how Singapore continues to attract interest despite high tariffs and government-imposed moratoriums. 'Malaysia's challenge is to make its long-term case compelling again,' he added. For now, Malaysia remains a magnet for data centre investments. Although the new power tariffs could pose short-term hurdles for data centre projects in Malaysia, BMI expects the country to retain its leading position in emerging South-east Asia on the back of strong demand for cloud computing. According to Barclays, the rising demand for data and cloud computing is fuelling the need for power and water-intensive data centres across Asia-Pacific. Annual foreign direct investment (FDI) in Apac data centres is projected to reach US$62 billion by 2030, up from US$35 billion in 2024. Malaysia, together with India, stand out as the biggest relative beneficiaries. 'As a percentage of gross domestic product, we think Malaysia will be the biggest beneficiary by the end of the decade, with a bump-up in FDI of potentially 0.4 per cent of GDP from current levels,' said the analysts. Adapt, not exit To mitigate the cost pressures, industry players are adapting through strategic partnerships and technological innovation rather than retreating from the Malaysian market. In June, Bridge Data Centres signed a memorandum of understanding with South Korea's SK Innovation to deploy AI-driven energy management, backup fuel cells and immersion cooling at a major hyperscale facility in Johor, based on a press release. 'Our partnership with SK Innovation reflects our commitment to advancing green energy technologies for data centres, supporting our customers' goals for sustainable and scalable growth,' said Kevin Guan, chief investment officer of Bridge Data Centres.
Malay Mail
01-07-2025
- Business
- Malay Mail
Malaysia's data centre operators face higher power costs under new tariff structure
KUALA LUMPUR, July 1 — 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 South-east Asian hub of digital investments. Competitive rates for electricity, which forms the bulk of operating costs, make Malaysia a magnet for data centres compared to land-scarce neighbour Singapore, luring billions of dollars in investment from companies like Microsoft and Google. The tariff hike unveiled in December, with details fleshed out last month, could boost electricity costs by 10 per cent to 14 per cent before surcharges for major consumers such as data centres, an industry official and a government official said. A key element of the uncertainty stems from the bands used to calculate power bills in the tiered pricing system, with industry players saying most major centres are expected to fall in the ultra-high voltage category with the highest tariffs. With many in the industry unprepared for the scale of increases, some investors may now adopt a wait-and-watch approach, said Gary Goh, founder and director of data centre advisory firm Sprint DC Consulting. 'For a 100-megawatt (MW) facility, this could translate to an additional US$15 million (RM63 million) to US$20 million per year without considering fuel surcharge,' he added. The government plans to announce a fuel surcharge every month that reflects changes in fuel prices and foreign exchange. This month the surcharge stands at zero, state grid operator Tenaga Nasional Berhad (TNB) said on its website on Tuesday. Malaysia is set for the region's fastest surge in data centre power demand, tripling to 21 per cent by 2027 from 7 per cent in 2022, a joint report in May by consultancy Bain & Co and firms such as Google and Singapore's state-owned Temasek showed. The new tariff structure means operators of big data centre operators will now account for a higher share of grid management costs than smaller peers, said Cheam Tat Inn, managing director of the Malaysian arm of US operator Equinix. 'If you are a large data centre, then you pay for a bigger share of the infrastructure or distribution network costs,' Cheam said. Equinix, with two data centres in Malaysia, was looking at various providers of alternative energy in anticipation of higher tariffs, Cheam said last month. Tenaga declined to comment, directing queries to Malaysia's Energy Commission, which did not immediately respond to requests for comment. Prime Minister Datuk Seri Anwar Ibrahim has defended the increases as necessary to boost social spending. Until now, Malaysia had used lower power prices and a stable power grid to lure investment in data centres. But tariff hikes could drive investment towards neighbouring Vietnam and Thailand, said Mahadhir Aziz, president of the Data Centre Association of Malaysia, which groups firms such as Bridge, AirTrunk and DayOne, as well as Equinix. 'The government would have to look at this now, at least regionally,' he added. 'Data centres or digital infrastructure business, while they may have invested in land and buildings here, can actually still reconsider their investments.' — Reuters
Malay Mail
01-07-2025
- Business
- Malay Mail
Malaysia's data centre boom hit by power price shock, investors may rethink plans
KUALA LUMPUR, July 1 — 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 South-east Asian hub of digital investments. Competitive rates for electricity, which forms the bulk of operating costs, make Malaysia a magnet for data centres compared to land-scarce neighbour Singapore, luring billions of dollars in investment from companies like Microsoft and Google. The tariff hike unveiled in December, with details fleshed out last month, could boost electricity costs by 10 per cent to 14 per cent before surcharges for major consumers such as data centres, an industry official and a government official said. A key element of the uncertainty stems from the bands used to calculate power bills in the tiered pricing system, with industry players saying most major centres are expected to fall in the ultra-high voltage category with the highest tariffs. With many in the industry unprepared for the scale of increases, some investors may now adopt a wait-and-watch approach, said Gary Goh, founder and director of data centre advisory firm Sprint DC Consulting. 'For a 100-megawatt (MW) facility, this could translate to an additional US$15 million (RM63 million) to US$20 million per year without considering fuel surcharge,' he added. The government plans to announce a fuel surcharge every month that reflects changes in fuel prices and foreign exchange. This month the surcharge stands at zero, state grid operator Tenaga Nasional Berhad (TNB) said on its website on Tuesday. Malaysia is set for the region's fastest surge in data centre power demand, tripling to 21 per cent by 2027 from 7 per cent in 2022, a joint report in May by consultancy Bain & Co and firms such as Google and Singapore's state-owned Temasek showed. The new tariff structure means operators of big data centre operators will now account for a higher share of grid management costs than smaller peers, said Cheam Tat Inn, managing director of the Malaysian arm of US operator Equinix. 'If you are a large data centre, then you pay for a bigger share of the infrastructure or distribution network costs,' Cheam said. Equinix, with two data centres in Malaysia, was looking at various providers of alternative energy in anticipation of higher tariffs, Cheam said last month. Tenaga declined to comment, directing queries to Malaysia's Energy Commission, which did not immediately respond to requests for comment. Prime Minister Datuk Seri Anwar Ibrahim has defended the increases as necessary to boost social spending. Until now, Malaysia had used lower power prices and a stable power grid to lure investment in data centres. But tariff hikes could drive investment towards neighbouring Vietnam and Thailand, said Mahadhir Aziz, president of the Data Centre Association of Malaysia, which groups firms such as Bridge, AirTrunk and DayOne, as well as Equinix. 'The government would have to look at this now, at least regionally,' he added. 'Data centres or digital infrastructure business, while they may have invested in land and buildings here, can actually still reconsider their investments.' — Reuters
