Winson Lau, a successful exporter based in Malaysia's Johor province, has always been prepared for contingencies. However, the rise of data centres was something he hadn't anticipated. Lau's business, which relies heavily on water and electricity, has contingency plans involving a complex system of wastewater purification usingfriendly bacteria and an alarm system for swift transition to backup power during outages. But these measures are no match for the colossal, energy-hungry and water-intensive data centres sprouting up in Johor.
The province is set to host at least 1.6 gigawatts of data centres at any given time, up from virtually zero in 2019, making it Southeast Asia's fastest-growing data centre market, as per an April report. These large, windowless structures house rows of computers that consume vast amounts of electricity and require energy-intensive air conditioning systems, often water-based, to prevent overheating.
Increasingly favoured by tech firms for running artificial intelligence systems, the power demand from future facilities in Malaysia could exceed 5 gigawatts by 2035, say researchers at Malaysia's Kenanga Investment Bank. This figure surpasses half of Malaysia's total renewable capacity projected for 2023.
Malaysia relied heavily on fossil fuels for its energy in 2022, with over 95% of its power coming from such sources, as per the International Energy Agency. The nation has become the fifth-largest exporter of liquefied natural gas in the world. With an eye on renewable projects, Prime Minister Anwar Ibrahim expressed confidence in September about Malaysia's energy prospects, stating that the country was "confident of a surplus of energy" to support major initiatives and continue its export activities.
However, local entrepreneur Lau is sceptical about his business's ability to compete for energy with large, foreign-funded enterprises. In a bid to keep his fish farm afloat, he's planning a move to Thailand and is already on the lookout for new locations. "Big data center is coming and there is shortage of power," he commented. "It'll be crazy.".
Malaysia is gambling on the potential economic boost from data centers to justify this risk. Once on the brink of wealth as an 'Asian tiger', the country saw its industries contract following the Asian financial crisis in the late 1990s and has since been stuck in a middle-income rut. The government is hopeful that data centers will revamp its economy and indirectly generate thousands of well-paid jobs.
Concerns are mounting among experts that Malaysia, along with other nations such as Vietnam, Indonesia, and India aiming for massive tech investments, might be exaggerating the transformational impact of data centers. These facilities come at a significant environmental cost, consuming substantial amounts of land, water, and electricity while delivering fewer jobs than anticipated.
According to American nonprofit Good Jobs First, most data centers create only 30 to 50 permanent positions, with larger ones offering up to 200 jobs max. Compounding these worries is the surge in power and water consumption associated with these hubs.
Sofia Scasserra from the Amsterdam-based Transnational Institute, who studies digital economies, believes that tech companies' exploitation of resources in less wealthy countries and the extraction of data from their populace to make profits can be likened to "digital colonialism.".
She draws an analogy between today's data extraction and Bolivia's historic silver mining, which profited colonial Spain hugely but contributed nothing lasting to Latin America. "They are extracting data in the same way. Data doesn't even leave (behind) taxes," she pointed out.
Artificial intelligence is fuelling the thirst for additional data centers, prompting tech giants to hunt for larger and more cost-effective locations across the globe as part of a "global strategy," according to Rangu Salgame, the chairman and CEO of Princeton Digital Group based in Singapore. This firm is in the process of constructing a whopping 170-megawatt site in Johor.
Data facilities exceeding 40 megawatts generally require an area equal to about seven football pitches – that's enough juice to power some 36,000 homes in the US, Stream Data Centers reports. Building such expansive and power-hungry centers in wealthy countries like the United States, which historically has more data centers than anywhere else but also pricey land, is becoming increasingly expensive.
This is where Malaysia steps in, offering cheap land, surplus power capacity, and enticing tax breaks. Malaysia saw the quickest growth in the Asia Pacific data center market during the first half of 2024, as per global property consultancy Cushman and Wakefield.
The nation ranks as the eighth-largest in operations and sits at fifth-largest considering projects in the pipeline, trailing behind the heavyweights – China, India, Japan, and Australia. On the world stage, Malaysia is currently the 14th in operational capacity, lagging behind data hubs like Frankfurt, London, Amsterdam, Paris, and Dublin.
