Malaysia’s Data Center Boom: A Double-Edged Sword

JOHOR BAHRU, Malaysia – Winson Lau, a businessman in Malaysia’s Johor province, has always had contingency plans. However, he was unprepared for the wave of data centers sweeping the region. His plans, which include using wastewater purified by bacteria and a backup power system, fail to compete with the power-hungry and water-intensive data centers under construction.

The Rapid Growth of Data Centers in Johor

In 2019, Johor had virtually no data centers. Today, the province is projected to host at least 1.6 gigawatts of data centers by any given moment, making it the fastest-growing data center market in Southeast Asia, according to a report published in April.

Data centers are enormous, windowless buildings filled with computer racks that require significant electricity and water for cooling. Future facilities in Malaysia could demand over 5 gigawatts of power by 2035, surpassing half of the country’s renewable energy capacity in 2023.

The Energy Dilemma in Malaysia

In 2022, over 95% of Malaysia’s energy came from fossil fuels, and the country is a leading exporter of liquefied natural gas. Despite this, the government, under Prime Minister Anwar Ibrahim, is confident of a surplus to fuel large projects and continue exports, saying in September that Malaysia will remain “confident of a surplus of energy.”

However, Lau is skeptical. He worries that his business will struggle to compete with foreign-funded data centers for limited power resources and is considering moving to Thailand to establish a new fish farm.

Hope and Concerns About Data Centers

The Malaysian government sees data centers as a key to modernizing the economy and creating high-paying jobs. Previously a promising Asian tiger struggling after the 1997 financial crisis, Malaysia aims to leverage data centers to escape the middle-income trap.

Experts, however, are divided on the impact. On one hand, data centers could spur economic growth. On the other, the environmental and economic costs are significant. According to Good Jobs First, data centers typically provide 30 to 50 permanent jobs and, at most, 200 in larger facilities.

Challenges and Criticisms

Data centers consume vast amounts of land, water, and electricity while creating fewer jobs than advertised. Some critics, like Sofia Scasserra from the Transnational Institute, describe this as “digital colonialism,” drawing parallels to historical extraction practices that enriched colonial powers without benefiting the local economy.

“Data center expansion is akin to silver mining in Bolivia, enriching colonial Spain while leaving nothing behind for Latin America,” Scasserra said.

The Global Race for Data Center Sites

Artificial intelligence is fueling the global demand for data centers, driving tech giants to seek cheaper locations. Singapore, which paused new projects in 2019 due to resource strain, is now building sustainably. Malaysia, with its low land costs, excess power capacity, and tax incentives, is filling the gap.

In the first ten months of 2024, Malaysia attracted over $31 billion in data center investments, three times the amount from the previous year. Johor hosts 22 foreign data centers, covering nearly 21 hectares of land.

Future Prospects and Sustainability

While some hope that data centers will accelerate clean energy development, experts like Putra Adhiguna from the Energy Shift Institute caution that the sudden surge in demand complicates sustainable transitions.

“Adding data centers makes clean energy transitions more challenging,” Adhiguna explained.

Alex de Vries, founder of Digiconomist, argues that big tech companies are using new markets to distract from their significant energy demands.

“These companies are moving to new places where their promises of economic growth have proven empty,” de Vries added.

The Malaysian Government’s Response

Malaysia acknowledges the substantial energy demand but sees data centers as crucial for becoming a key player in Southeast Asia’s digital ecosystem. The government has introduced efficiency guidelines for data centers and a policy allowing direct clean energy purchases.

Malaysian Investment, Trade, and Industry Minister Tengku Zafrul Aziz stated in an email, “Malaysia aims to be a leader in the region’s digital landscape.”

Conclusion

Malaysia’s rush to build data centers presents both opportunities and challenges. Economic growth and job creation are enticing, but the environmental impact and the struggle for power mean that local businesses like Lau’s face significant hurdles.

As the data center boom continues, balancing growth with sustainability will be critical. Stakeholders must work together to ensure that Malaysia’s digital future benefits both the economy and the environment.

What do you think about Malaysia’s data center initiatives? Share your thoughts below or join the conversation on social media!