Malaysia's data centers threatened by high power costs

Data centers in Malaysia are reassessing their operation costs after a spike in power tariffs. The new tariff introduced last December will take effect today, July 1, increasing operational costs for data centers and charges on network capacity.

Samuel Tan, founder and CEO of Olive Tree Property Consultants, revealed that Corporate Renewable Energy Supply Scheme policies aim to prevent such effects. However, the overall effect would still increase data center operational costs.

According to Tan, the new tariff structure will be voltage-based, where heavy users like data centers face higher charges. 

Malaysia face high electricity costs under new tariffs

The power tariff rate will increase from 39.96 sen per kWh to 45.62 sen per kWh, from July 1, 2025 to December 31, 2026. The new tariff aims to boost electricity costs by 10% to 14% before surcharges for major consumers such as data centers.

Gary Goh, founder and director of data centre advisory firm Sprint DC Consulting, revealed that unprepared investors have been left to wait and see in the meantime, adding that a 100-megawatt facility could expect an additional cost of $15 million to $20 million per year without the fuel surcharge. 

Tenaga Nasional Berhad (TNB) revealed on Tuesday that the government will announce a monthly fuel surcharge based on changes in fuel prices and foreign exchange rates. This could trigger more fluctuations in electricity prices, which is expected to affect SMEs within the sector. 

Samuel Tan, CEO of Olive Tree Property Consultants, said several data centers rushed to sign Power Purchase Agreements (PPAs) with TNB before the effective date as part of the growing trend of data center development in Malaysia, driven by international companies such as Google and Microsoft.

According to a report by ARC Group, a global investment bank, the country’s data center sector was projected to grow at a 22% CAGR from 2023 to 2029 due to cost competitiveness, skilled workforce, and a robust digital ecosystem.

Cheam Tat Inn, managing director of Equinix, reiterated that the new tariff would assign big data center operators a higher share of the grid management costs than smaller operators. Equinix, which has two data centers in Malaysia, was searching for alternative energy providers in anticipation of the new tariff.  

Malaysia risks losing power-intensive investments to neighboring countries

Malaysia has kept energy and land prices low compared to competitors like Singapore to lure investors. However, the new tariffs risk driving away investors to neighboring countries such as Vietnam and Thailand, according to Mahadhir Aziz, president of the Data Centre Association of Malaysia. He appealed for the government to re-evaluate the issue from a regional perspective.

He believes that despite the intensive investment in land and buildings by data centers and digital infrastructure companies, they may have to reassess their investment.

The Energy Commission argued that the approved new tariff structure will provide a more equitable and progressive electricity tariff for 23.6 million users in Malaysia. The Commission added that the changes will reflect the actual cost of electricity supply from generation to distribution, and encourage efficient use through incentives and rebates.

Samuel Tan explained that the new tariff is now broken down into five key components: Energy,  Automatic Fuel Adjustment (AFA), Capacity, Network, and Retail. The capacity charge is 4.66 sen per kWh, the network charge is 12.85 sen per kWh, and the retail charge is RM10 per month. 

Consumers utilizing up to 1500 kWh per month will pay an average of 44.5 sen per kWh before tax application, AFA, rebates, and incentives. In addition to the charges, there is a 1.6% Renewable Energy Fund (RE Fund) chargeable to all customers except domestic customers with total consumption of 300 kWh and below.

Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More