This article first appeared in The Edge Malaysia Weekly on July 15, 2024 - July 21, 2024

Malaysia is aiming to become a data centre hub in the region, with a slew of investments in such facilities being announced in recent months. In fact, approved investments from data centres amounted to RM114.7 billion from 2021 to 2023. More recent announcements have included Microsoft Corp’s investment of US$2.2 billion (RM10.4 billion) in cloud and artificial intelligence (AI) infrastructure in Malaysia.

Data centres are the backbone of the digital economy, which requires immense computing power to fuel the latest technologies like AI, hence the development of such infrastructure is only expected to increase.

But concerns have been raised on the environmental impact of data centres. Known to be energy guzzlers, these facilities may put a strain on the national grid and water resources. This begs the question of whether Malaysia should impose more stringent environmental impact-related prerequisites on incoming data centres.

Countries such as Ireland, Germany, Singapore and China have introduced restrictions on new data centres in recent years, to comply with stricter environmental requirements. This comes amid fears that the huge energy usage of data centres would place excessive pressure on electricity grids and threaten the achievement of national climate targets.

Johor, the largest recipient of data centre investments in the country, is still drafting the Johor State Data Centre Development Planning Guidelines to coordinate and monitor data centre development planning. In May, the Johor Bahru city council mayor was quoted as saying that water and power supply remains a major challenge in the state.

Currently, the Malaysian Communications and Multimedia Commission (MCMC) Technical Code for Green Data Centres provides the minimum requirements on energy efficiency for green data centres. But the code has a registered date of Dec 18, 2015, making it almost 10 years old.

“[With] today’s technological rate of change, that document is considerably outdated. For example, the MCMC document in 2015 specified that a power usage effectiveness (PUE) below 1.6 is excellent. In 2023 or earlier, Singapore had specified that any new data centre built must have a PUE below 1.3,” says Tang Chee Khoay, chair of the working committee for the development of a data centre tool by the Green Building Index (GBI).

PUE is a standard efficiency metric for power consumption in data centres. The closer the PUE is to 1, the more efficient a data centre is.

“We should ensure that the [citizens’] need for energy and water must be met before they are promised to data centres,” says Tang. “It is also important that subsidies in energy and water are channelled to the people and not to industries such as data centres. If a business requires subsidies from us to be profitable, it is not a viable one to have in Malaysia.”

Tang recommends a detailed national study that will provide a projection over the next 20 years of the country’s ability to support the energy and water demands of data centres. The outcomes can be used to recommend the necessary requirements to minimise electricity consumption and the environmental impact of data centres.

Additionally, stricter regulations must be imposed on data centres, which can be done by ensuring that these projects adhere to green building guidelines, use energy-efficient technologies and incorporate renewable energy (RE) sources, says Arul Hisham, senior partner at AHAR Consultants. The company provides consultancy services in building development.

“Data centres are being treated like any new development. The problem is that [they] are energy guzzlers. The energy requirement they have is huge. The government has to ensure [that guidelines] are followed, so that data centres [can be managed] sustainably,” says Arul.

Saraswathy Shamini Gunasekaran, director of the Institute of Informatics and Computing in Energy (IICE), suggests that data centre operators conduct grid impact assessments to evaluate the strain they may put on the grid, and participate in demand response programmes to adjust their electricity consumption during peak demand. IICE conducts research and consultancy work on the design and development of information and communications technology solutions to address energy challenges.

“It is crucial that the government enforce certain policies and regulations to promote sustainable data centre practices,” says Saraswathy. Otherwise, it would derail Malaysia’s net zero goals.

Data centre projects are estimated to reach at least 4.7gw over the next 10 years in Malaysia. In 2023, nine data centres with a combined capacity of about 635mw were completed, says a spokesman from the Ministry of Investment, Trade and Industry (Miti).

Data centres consume significant amounts of electricity to operate their servers, cooling systems, networking equipment and other infrastructure. As data centre capacity expands or new facilities are built, it would contribute to increased demand for electricity from the grid, especially in regions with a high concentration of data centres.

According to the Uptime Institute, a few data centre campuses around the world already have capacities of 300mw, and some have planned capacities that exceed 1gw. An average on-site data centre has an energy draw of about 100mw, while a small data centre has an energy draw of 1mw to 5mw. The industry average PUE is 1.58.

Overload or congestion of the grid could cause voltage fluctuations and power outages. The impact could be especially pronounced during periods of high demand, especially as data centres operate throughout the day, observes IICE’s Saraswathy.

Miti is optimistic that Malaysia can manage the demand from the influx of data centres. “Malaysia had a total installed capacity of 26,890mw for the national electricity supply. Malaysia’s Energy Commission reported that in 2021, even at peak demand times, the national grid still had a reserve margin of 42% or 8.3gw,” says the Miti spokesman.

In comparison, Singapore’s Green Data Centre Roadmap aims to reduce energy consumption and improve energy efficiency of data centres in the country. The road map seeks to provide at least 300mw of additional capacity in the near term through green energy deployments.

The city state requires new data centres to have a PUE of 1.3 or below. In contrast, Malaysia has set a minimum requirement of 1.9 PUE, while a rating of 1.6 PUE is deemed excellent.

However, the limited capacity allocated for data centres in Singapore might dampen investor interest, according to a BMI market report. This is as the advent of AI has increased data centre capacity requirements to above 1mw. Imposing stringent environmental regulations may also deter companies from coming to shore.

Malaysia is taking a different strategy. Incentives are being developed to ensure the country becomes the preferred destination for data centres, and more will be introduced to accommodate AI data centres, according to Miti.

How will Malaysia then balance its data centre needs with its net zero ambitions?

Miti says it aims to address these concerns by ensuring that all new investments, including data centres, incorporate environmental, social and governance considerations in their proposals. For instance, Malaysia’s investment criteria will be adjusted to address aspects such as effective cooling technology, obtaining power from RE and maximising energy efficiency, which is in line with the New Industrial Master Plan 2030, said Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz in a news report.

“Data centres typically have a large environmental footprint, and we have every right to request that they utilise energy-efficient technologies and RE sources. Aligning our data centre growth strategy with Malaysia’s net zero goal makes commercial sense as prioritising sustainability not only improves efficiency but also lowers operational costs,” says Miti.

The adoption of RE and energy efficiency by data centres can reduce their dependence on the grid.

Meanwhile, those that rely on the grid can support more integration of RE. Tenaga Nasional Bhd (KL:TENAGA) is targeting to increase the national RE capacity to 8,300mw by 2025. Malaysia’s current RE capacity is at 25%, and there are 7,700mw of green energy developments in the pipeline.

Tenaga has entered into electricity supply agreements with nine data centre projects with a total potential demand of 2,300mw. In FY2024, nine more data centres with a total potential demand of 700mw are expected to be completed.

The pursuit of RE comes with its own set of challenges, such as limited existing RE capacity, the intermittency of solar energy, and the need for vast parcels of land for solar power plants.

“[Let’s say] producing 1mw of power [of solar energy, requires about] 10 acres of land. Therefore, to power up 2,400mw, we need a land size of 24,000 acres. That is 10% of the state of Perlis,” says Hisham Mustaffa, an independent infrastructure planning engineer and a former chief engineer at Tenaga.

Replacing dispatchable power generation, such as from natural gas or coal, with intermittent RE like solar and wind energy, could cause grid instability.

To circumvent limited RE capacity, data centres are going for RE certificates (RECs) instead.

For instance, 43% of Equinix’s global energy consumption is covered through the purchase of RECs, while in Malaysia, it is 100%, says Jason Plamondon, regional sustainability manager of Asia-Pacific at Equinix.

Equinix owns and operates 260 data centres globally, and has established data centres in Johor and Kuala Lumpur.

“RECs are simply a way to offset your emissions. When you purchase RECs, you’re essentially saying you’re supporting RE development elsewhere, which is now contributing RE to the grid,” says Plamondon. “It would be a perfect world if there were just unlimited supplies of RE that we could tap into and ensure that our operations are as sustainable as possible. That’s not the case in all the areas we operate. We have to work within the systems and capabilities of the countries we are in and within the regulations.”

There are also power purchase agreements (PPAs), which are financial contracts that bring to market RE projects such as wind and solar farms that increase access to clean energy in local energy grids. PPAs are usually contracts wherein electricity consumers purchase from a renewable generator at a fixed price over multiple years. PPAs are preferred to RECs as they provide additional RE capacity to local grids.

Equinix has executed 21 PPAs globally, resulting in three million megawatts of RE.

The mitigation hierarchy, a framework that is used to minimise the environmental impact of projects, guides companies to focus on reducing in-house emissions before using carbon offsetting for the remainder of the emissions. The principles of the mitigation hierarchy are to measure, reduce and, only then, to offset.

Similarly, this is why data centres are encouraged to prioritise energy efficiency before RE is considered. Energy efficiency methods include server visualisation, improved cooling systems and optimised power usage, to reduce the PUE of their operations.

RECs should be the last resort for green energy, asserts Tang. “All businesses have the tendency to go with the easiest path to achieve an objective. The easiest path for a data centre to go green is to buy RECs. However, RECs alone do not address actual reduction of carbon emissions or reduce water consumption.”

Strong government and industry efforts in energy efficiency are necessary to curb energy demand and growth of emissions.

For instance, the air-conditioning system, which accounts for half of the energy consumed by data centres, could utilise thermal energy storage or the district cooling system, says AHAR’s Arul. These technologies, which produce chilled water during off-peak periods, can be used to reduce power consumption and peak demands during the daytime.

Heat from the servers can also be recovered and reused to produce cooling energy using an absorption chiller on-site, instead of being wasted.

Equinix is targeting an average PUE of 1.30 globally, from the current 1.42. It utilises AI for optimised cooling, expanding thermal envelopes and airflow management. By being more energy efficient, the data centre consumes less energy from the grid.

“Data centres must provide proof that they are practising energy efficiency in their premises. This has to be checked and audited on a regular basis,” says Hisham.

For instance, the Efficient Management of Electrical Energy Regulations 2008, which were enacted by the Energy Commission, have to be strictly enforced. The law requires large electricity consumers to disclose energy consumption of more than 3,000mw within six months. A registered electrical energy manager is required to conduct an audit on the consumer.

“The government has to be very strict. It cannot allow data centres to [flout] these guidelines. [It must play its role] in ensuring that data centres do not put a strain on the infrastructure,” says Arul.

To quantify the performance of data centres in terms of energy and water efficiency, as well as embodied carbon, indoor and outdoor environmental quality, GBI is developing a tool for data centres based on a performance benchmark.

Thereafter, a data centre would be labelled as a platinum-, gold- or silver-certified GBI data centre, providing easy reference to the public on how well a data centre is performing in terms of sustainability.

“We are in the process of collecting industry input to develop the various benchmarks for data centres. Upon reaching a collective agreement on the scoring of these benchmarks, the GBI data centre tool will be launched and implemented by the GBI body,” says Tang.

Adherence to a green building standard such as GBI would ensure that data centres are designed to and do operate with minimal environmental impact, says Miti.

While the increasing demand for data centres can provide opportunities for the Malaysian digital economy, the country has to be wary of its implications.

“How are we going to ensure that [data centres] come but in a controlled manner that is good for us that doesn’t harm us in the long run? I think policymakers need to engage people to brainstorm and look at things in a holistic way. For now, I think we should welcome everyone, but there has to be a limit,” says Arul.

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