PETALING JAYA: The power sector has entered a pivotal electrification era, driven by a structural shift from traditional industrial growth to a massive data centre resurgence.
Kenanga Research said after decades of cooling demand, the data centre wave sparked a 6.2% consumption spike in 2024, with a 7,500 megawatts (MW) pipeline now in place.
“Although 2025 growth saw a temporary timing mismatch due to construction lags, the massive overhead of completed capacity represents a reservoir of pent-up demand poised to materialise through 2026,” it told clients in a report.
However, a critical supply gap looms as 6,400MW of coal capacity retires by 2031, necessitating 12,000MW of new builds to maintain grid stability.
“This urgency fast-tracks the NewGen26 tender and gas infrastructure projects like the Lumut regasification terminal (RGT) and Yan RGT,” it said.
An analyst told StarBiz that the power sector is “certainly” entering a multi-year upcycle.
“But there will also be a grid strain due to the rapid rollout of data centres,” he said.
Kenanga Research is maintaining its “overweight” rating on the utilities sector.
In its report, it noted that historically, Peninsular Malaysia’s electricity sales served as a reliable barometer for macroeconomic health.
“During the 1990s industrial boom, demand growth averaged a robust 13.8%, maintaining a 1.5 times multiplier against gross domestic product,” it said.
“However, subsequent decades saw a structural cooling with growth moderating to 5.9% (2000 to 2010) and slipped to 4.6% (2011 to 2019).
“This marked a decoupling where consumption lagged economic output, with the multiplier falling below one time as growth averaged just 3.9% post-pandemic.”
Kenanga Research said the narrative shifted in 2024 as the data centre wave drove a 6.2% resurgence, and while 2025 growth appeared to soften to 2.3%, this reflected a timing mismatch.
“A 16.3% surge in non-residential construction highlights heavy investment in data centre shells, which typically take 12 to 18 months to go live, eventually triggering Malaysia’s next major load cycle.”
In the report, Kenanga Research also noted that Malaysia had rapidly evolved into a global hub for data centres, with hyperscale giants like Google and Microsoft committing over US$16.5bil.
“While strict non-disclosure agreements often obscure project timelines, construction disclosures from listed companies, alongside upcoming tenders in Springhill Industrial Park, confirm a massive, multi-year build-out.”
It added that this represents a structural electrification of the economy, as data centres supersede traditional industries as the primary driver of baseload demand.
Kenanga Research noted that with 6,400MW of coal capacity retiring by 2031, natural gas has become Malaysia’s primary transition fuel, prompting the fast-tracking of two major RGTs.
“Ultimately, Malaysia’s power evolution is defined by the tension between rapid electrification and ageing baseload capacity.
“While the data centre wave secures multi-year demand upside, the looming retirement of 6,400MW of coal necessitates an aggressive response through the NewGen26 tender and fast-tracked RGT projects.”
It said parallel to these shifts, the regulatory landscape is tightening – the 2026 Climate Change Bill and the implementation of a National Carbon Tax will act as catalysts for independent power producers to accelerate decarbonisation and avoid margin erosion.
“We maintain our ‘overweight’ rating for the sector, with Tenaga Nasional Bhd
as our top pick for spearheading the grid super-cycle, while YTL Power International Bhd and Southern Cable Group Bhd remain prime proxies for the data centre surge and resulting grid reinforcement cycle.”
