Malaysia’s AI data center boom strains power grid and water supply

Malaysia’s southern state of Johor has emerged as one of Southeast Asia’s fastest-growing data center hubs, attracting billions in investments from tech giants like Google, Microsoft, and ByteDance amid the AI boom. However, the massive infrastructure demands are straining the region’s energy grid and water resources, forcing officials to slow project approvals and implement sustainability measures as the state grapples with powering what could become a 5,800-megawatt data center ecosystem.

The scale of growth: Johor’s data center expansion represents one of the most dramatic infrastructure buildouts in Southeast Asia, driven by AI’s computational demands.

• The state currently operates about 580 megawatts of data center capacity but has a total planned capacity of 5,800 MW across all projects in development.
• That energy capacity would be sufficient to power up to 5.7 million households per hour, according to calculations based on PKnergy data.
• Kenanga Investment Bank, a Malaysian independent investment bank, projects that Malaysia’s data centers will consume electricity equivalent to 20% of the country’s total energy-generating capacity by 2035.

Energy infrastructure challenges: The massive power requirements are forcing Malaysia to rapidly expand its electricity generation, potentially conflicting with climate goals.

• Malaysian officials expect to add 6 to 8 gigawatts of gas-fired power capacity, with total power consumption projected to increase 30% by 2030.
• While natural gas burns cleaner than coal—which still accounts for over 43% of Malaysia’s electricity—the expansion could clash with the country’s net-zero emissions target by 2050.
• Data center construction globally is struggling to keep pace with demand due to power constraints and permitting delays.

Water scarcity concerns: Data centers’ cooling requirements are putting additional pressure on Johor’s already strained water infrastructure.

• An average 100 MW data center consumes approximately 4.2 million liters of water daily—equivalent to supplying thousands of residents.
• Johor has experienced multiple water supply disruptions and already relies on neighboring Singapore for a significant portion of its treated water.
• The state is building three new reservoirs and water treatment plants to address growing demand.

Global context: Johor’s challenges reflect a worldwide infrastructure crisis as AI drives unprecedented data center demand.

• According to the International Monetary Fund, global data center electricity consumption reached the combined levels of Germany and France by 2023, shortly after ChatGPT’s launch.
• Researchers estimate AI-related infrastructure could consume four to six times more water than Denmark by 2027.
• A Carnegie Mellon and North Carolina State University analysis projects that by 2030, Americans’ electricity bills could rise 8% and power generation emissions 30% due to data center and cryptocurrency growth.

Government response: Malaysian authorities are implementing stricter regulations and sustainability requirements to manage the industry’s resource consumption.

• The government plans to launch a “Sustainable Data Centre Framework” by October, according to Investment, Trade and Industry Minister Tengku Zafrul.
• Officials recently imposed higher water tariffs on Johor’s data centers and are pushing the industry toward recycled wastewater usage.
• Malaysia is approving more renewable energy projects and exploring nuclear power to meet growing electricity demands.

Regional precedent: Singapore’s earlier regulatory approach demonstrates both the challenges and potential solutions for managing data center growth.

• Singapore imposed a three-year moratorium on new data centers in 2019 to control power and water usage, driving industry expansion to Johor.
• The city-state ended its moratorium in 2022 with a “Green Data Centre Roadmap” focused on energy efficiency and green power adoption.
• Growth in Singapore remains limited compared to Malaysia, according to DC Byte, a data center market intelligence firm.

What experts are saying: Environmental researchers emphasize that AI expansion doesn’t necessitate abandoning climate commitments.

• “There are no unavoidable AI uses, and whether we move towards net-zero emissions is a choice,” Jonathan Koomey, an independent researcher on information technology’s environmental effects, told CNBC.
• “There is no reason, in my view, why data center companies shouldn’t power AI expansion with zero emissions power. There is also no reason to abandon climate goals because AI companies say their expansion is urgent.”