Data Centres in Malaysia: Why Green Energy Rules Are Catching Up to the Boom
Updated: 8 hours ago
Malaysia doesn't need fewer data centres. It needs better-regulated ones and that's the future.
Malaysia's data centre sector has expanded at a pace few industries can match. Investment tied to data centres reached RM385.7 billion from 2021 to the first half of 2026, and electricity demand from this sector alone is projected to exceed 5,000 MW by 2035.
That growth, however, has come with a cost: data centres are large, round-the-clock consumers of both electricity and water, and in places like Johor, that strain has become difficult to ignore.
The response from policymakers has not been to slow data centre investment down. It has been to regulate how that growth draws on Malaysia's resources. Green energy obligations sit at the centre of that effort. The Problem: Growth Outpacing Infrastructure
Hyperscale data centres can consume between 20 and 100 megawatts of power per hour, which is enough to power a small city. Up to half of that power goes toward cooling systems that also draw heavily on water. Historically, most of this electricity has come from Malaysia's conventional grid, which remains dominated by coal and gas. That combination of high consumption and a fossil-heavy grid is what has given data centres their reputation as a strain on national resources rather than a clean growth story.
5,000+ MW Projected data centre electricity demand by 2035 | RM385.7B Data centre-related investment, 2021 to 1H 2026 | 20–100 MW Typical power draw of a single hyperscale facility |
Water: The More Immediate Strain
Electricity gets most of the attention, but water is where the pressure is being felt first and most locally. Figures cited in Parliament show Johor's data centres were already drawing 9.07 million litres of water a day, around 0.6% of the state's total usage. That may sound small, but it is concentrated in a state that relies on just 16 dams, has already suffered major supply disruptions, and is also contractually obligated to supply water to Singapore.
The bigger concern is what's coming, not what's already here. Johor, Selangor, and Negeri Sembilan together are projected to need 808 million litres a day to serve approved and pipeline data centre capacity against current infrastructure that can only reliably provide around 142 million litres a day, a shortfall of roughly 666 million litres daily. The heaviest-drinking facilities are the worst offenders: Tier 1 and Tier 2 data centres, which rely on older, less efficient water-based cooling, can each use up to 50 million litres a day (equivalent to about 20 Olympic-sized swimming pools), every single day, from one building.
9.07 MLD Water used daily by Johor's data centres (Parliament figures) | 666 MLD Projected water supply shortfall across Johor, Selangor & Negeri Sembilan | 50 MLD Daily water use of a single Tier 1/2 facility ~20 Olympic pools |
That gap is exactly why, in late 2025, Johor's state government halted new approvals for Tier 1 and Tier 2 data centres altogether, a direct response to water-security concerns after two major disruptions in the state affected more than a million residents.
Environmental groups have also pointed out that Johor's rivers, including Sungai Tebrau and Sungai Skudai, are already polluted, and researchers have urged operators toward hybrid water-and-air cooling, recycled industrial water, and coastal sites that could draw on desalinated seawater instead of treated drinking water.
Electricity: A Grid Being Asked to Grow Fast
On the power side, actual peak demand from data centres across Peninsular Malaysia hit 849 MW as of December 2025 and is officially projected to climb to 4,811 MW by 2030.
To keep pace, the government is planning up to 9,600 MW of new generation capacity to come online between 2028 and 2031, some of it replacing plants due to retire, not all of it net-new.
It is at this point that we also have to bring up the recent 2027 budget announcement where the government has pledged RM15 billion in spending support to strengthen long-term power supply security and meet rising electricity demand (including from large-scale data centres).
Regulators are also now cross-checking operators' declared maximum demand against what they actually draw, after June 2025 data showed facilities using only about 47% of the capacity they had reserved — capacity that, if left idle, still has to be built and paid for by someone.
Other Pressures Behind the Headlines
Water and electricity dominate the conversation, but they're not the only friction points. Land near substations and water infrastructure is being snapped up quickly, pushing up costs for other industrial users. Diesel backup generators and 24/7 cooling systems raise noise and local air-quality concerns for nearby communities. And because so much of Malaysia's grid still runs on coal and gas, uncontrolled data centre growth risks pushing national carbon emissions in the wrong direction at a time when the country has committed to cutting them.
The Fix: Mandated Green Energy, Not Fewer Projects
Malaysia's Data Centre Task Force (DCTF), a multi-agency body co-chaired by MITI and the Ministry of Digital, coordinating with MIDA, MDEC, the Energy Commission (ST), and state authorities, now screens every new or expanding project against available power and water capacity.
As recently mandated by the DCTF, newly approved data centre projects are subject to a minimum 30% renewable energy requirement, with the DCTF identifying the Corporate Renewable Energy Supply Scheme (CRESS) as the primary mechanism for meeting it.
WHAT THIS ACTUALLY MEANS This isn't a cap on data centre growth. It's a condition attached to it: operators can keep building and expanding, but a meaningful share of the power behind that expansion now has to come from renewable sources, procured and paid for through a formal, regulated channel and not simply drawn from the subsidised conventional grid at the public's expense. |
How CRESS Works
Under CRESS, a data centre (as the “Green Consumer”) signs a long-term Power Purchase Agreement directly with a Renewable Energy Developer, such as a solar project operator. The renewable electricity is then delivered through Malaysia's existing grid infrastructure via third-party access. This means that there is no restriction on how close the solar farm is to the end user and the green energy the solar farm produces can be tracked, contracted, and paid for at its own rate.
A recently introduced CRESS Acceleration Package has set the System Access Charge for firm green supply at 18 sen/kWh (down from an initial rate of 20 sen/kWh…and an increase from the subsequent rate of 14 sen/kWh…yes, it was first reduced and then increased), with a minimum 10-year contract term between developer and consumer, and a commercial operation deadline of 31 December 2028 to qualify. One real-world example: TNB Renewables signed an agreement with Bridge Data Centre for 400 MW of green electricity supply under this exact framework.
Why Regulation, Not Restriction, Is the Right Approach
Data centres underpin much of the digital economy. Malaysia is trying to attract cloud infrastructure, AI compute, and the investment that comes with both. Blocking that growth outright would mean turning away genuine economic opportunities. The more productive question policymakers have landed on is different: how is that growth resourced, and who pays for it?
By mandating a renewable energy floor and channelling it through CRESS, the framework ensures operators directly fund the renewable capacity their operations require, rather than drawing on subsidised power meant for ordinary consumers. It also creates a genuine commercial pathway for solar developers: predictable, long-term contracts with large, creditworthy buyers.
STILL A WORK IN PROGRESS CRESS take-up has so far been lower than policymakers hoped, and industry voices have noted that CRESS pricing can still run higher than subsidised gas-based tariffs available to large industrial consumers. The Acceleration Package's lower access charge and longer contract term are a direct response to that feedback, aimed at making the scheme more commercially workable as adoption scales. |
The Bottom Line
Malaysia's data centre sector isn't being curbed, it's being made to pay its fair share for the resources it uses. Mandated renewable energy sourcing, delivered primarily through CRESS, is the mechanism doing that work: keeping investment flowing in while ensuring the power behind it is contracted, accounted for, and increasingly green.
Positioned for the CRESS Opportunity
As data centres and other large electricity users turn to CRESS, Solarlink Energy offers integrated Solar PV, BESS, EPCC, and O&M capabilities to support that demand.
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