KUALA LUMPUR (Aug 8): The government's proposal to introduce regulations aimed at enforcing sustainability-linked standards for the domestic data centre market will see some of the data centres becoming non-compliant with the requirement, carrying implications for domestic competitive dynamics, according to Fitch Solutions company BMI.
BMI said the sustainability-linked regulatory framework proposed by the Ministry of Energy Transition and Water Transformation may carry some degree of risk for data centre builders and operators already engaged in the construction of campuses or facilities.
"In 2024, it is common for the Malaysian market to feature developments in the 200MW (megawatt) range, meaning that such sites are built in multiple phases and facilities.
"Some of the early phases of the latter campuses that are already built or are being built may not comply with the upcoming regulations. This could represent a
[temporary] loss for some investors, as they may be forced to bring their facilities up to compliant standards," said BMI in a note.
It noted that a similar situation is already taking place in Germany as a result of the local Power Usage Effectiveness regulations, which is set to reshape market shares over time.
"By extension, data centre operators that feature strong and relevant sustainability-linked credentials will be in possession of a considerable competitive edge against
some rivals," added BMI.
Nevertheless, the company said it is unlikely that the proposed regulations will lead to temporary data centre moratoria in places like Johor, and data centre projects may begin to relocate to new areas away from Johor and Kuala Lumpur.
As per BMI estimates, between 2023 and mid-2024, investors in Malaysia announced data centre projects totalling over 2.11 gigawatts (GW). In the first half of 2024 alone, 850MW of data centre investments were disclosed, nearly matching 2023's total of 1.26GW.
BMI anticipates that data centre investments in Malaysia may slow down due to the new operational requirements, which some investors may be unable to meet.
As a result, investors might redirect projects to neighbouring markets with abundant power and fewer sustainability regulations, such as Indonesia, Thailand, and the Philippines, which could serve the digitally mature East Asian economies of Japan and South Korea, the company said.
On Monday, Deputy Energy Transition and Water Transformation Minister Akmal Nasrullah Mohd Nasir said the ministry will focus on the energy and water supply framework for the data centre industry.
He added that the ministry had given its views on sustainability as a key aspect of the National Energy Transition Roadmap, which had attracted foreign investors.