Malaysia’s booming data centre industry is under pressure following the implementation of steeper-than-expected power tariff hikes on Tuesday, prompting operators to urgently reassess their business models and cost structures. The increases pose a threat to the country’s ambitions of becoming a regional digital investment hub, especially as it competes with neighbours like Singapore, Vietnam, and Thailand.
Electricity accounts for the majority of operational costs for data centres, and Malaysia’s historically low power rates have been a major draw for global tech giants such as Microsoft and Google. But the new pricing structure, announced last December and detailed last month, is set to raise electricity costs by 10% to 14% for major consumers—particularly those in the ultra-high voltage category.
Gary Goh, director of Sprint DC Consulting, warned that the cost burden could be substantial: “For a 100-megawatt facility, this could translate to an additional $15 million to $20 million annually, excluding the variable fuel surcharge.” The government plans to adjust that surcharge monthly based on fuel prices and exchange rates. For June, the rate is currently zero, according to Tenaga Nasional Berhad (TNB), the national grid operator.
However, uncertainty over tiered pricing bands and how surcharges will evolve is causing anxiety among investors. Many were not prepared for the scale of the increases, prompting a potential “wait-and-see” approach from some firms, industry sources say.
Malaysia is forecast to see the fastest growth in regional data centre energy demand, with its share expected to triple to 21% by 2027, according to a May report by Bain & Co, Google, and Temasek. Yet these recent developments could prompt investors to reconsider their commitments.
Cheam Tat Inn, managing director of Equinix Malaysia, said the new tariff structure shifts a larger share of grid management and infrastructure costs onto larger data centres. Equinix, which runs two data centres in Malaysia, is already exploring alternative energy providers to cushion the impact.
The government has defended the price hikes as essential to support social spending, but industry groups are warning of unintended consequences. Mahadhir Aziz, head of the Data Centre Association of Malaysia, said the government must reconsider its position, especially as competitors in the region offer alternative locations. “Even if companies have invested in land and buildings here, they can still reconsider their investments,” he said.
Tenaga declined to comment, directing questions to the Energy Commission, which has yet to respond.