PETALING JAYA: BMI, a unit of Fitch Solutions, forecasts an average 9.7% year-on-year capacity growth in data centres across Asia Pacific between this year and 2028, with Malaysia, Indonesia and India at the forefront of this growth.
The market analyst noted that while Malaysia is leading the region in data centre expansion, the pace of expansion is placing significant pressure on its land and power resources, including the power grid.
“We expect a mismatch between data centre power demand and power generation growth. In 2024, data centres accounted for about 20% of Malaysia’s electricity output growth, however, we expect this to rise to between 70% and 90% in 2025 and 2026 as a wave of new data centres come online,” BMI warned.
Meeting the new demand with clean power is becoming more challenging but increasingly important as renewable-matching commitments become central to data centre operators’ business models.
In addition, the recent hike in electricity tariffs for data centres in Malaysia could be an impetus for data centre investors and operators to look towards other markets in the region for expansion.
BMI said it believes operators are increasingly looking to Thailand and the Philippines as alternative location sites.
Another concern is the slow expansion of the power grid in the region, which risks creating a bottleneck as the grid is unable to accommodate both new renewable generation and the intense, concentrated demand from data centres.
For example, it said Indonesia’s grid constraints pose a major challenge to integrating new supply and meeting data centre requirements, as highlighted by slow transmission-project execution relative to the speed of capacity additions.
As demand from data centres in places like Malaysia and Indonesia is about four times higher than renewables output growth, India could be in the best position in the region to capitalise on data centres demand for clean power.
India allows data centres to secure clean power via many procurement options.
BMI noticed a growing trend of data centres and corporates in India opting for captive renewable projects, where they hold at least 26% equity and consume a minimum of 51% of the power generated annually.
“Such projects benefit from exemptions on cross-subsidy and certain additional surcharges, offering a more cost-effective and reliable supply of clean power,” BMI said.
The Indian government has recently implemented more stringent grid connection rules, including revoking grid access for about 17 gigawatt of delayed clean-energy projects to free transmission capacity for completed renewable projects.
While there are challenges in the region, prospects for Asia Pacifir remain bright as rising electricity costs in the United States, which has more than doubled in some data centre hubs, is eroding the United States’ long-term competitiveness in favour of Asia.
“Asia offers shorter lead times for new renewables, particularly solar and relatively competitive energy costs, reinforcing its appeal for global data centre operators seeking reliable, scalable power,” BMI said.
