The rapid proliferation of data centres in Malaysia reflects the country’s ambition to become a key digital hub in Asia Pacific. Driven by increasing demand for cloud computing, artificial intelligence (AI), and digital services, Malaysia has emerged as an attractive destination for data centre investments due to its strategic location, robust infrastructure, and government incentives.
Major technology firms and hyperscale providers are expanding their presence, fuelling significant growth in data centre capacity. However, this expansion brings pressing challenges, including high energy and water consumption, grid stability, and sustainability concerns.
At the recent Siemens Data Centre Conference 2025, two panels of respected industry leaders discussed how, as the industry evolves, Malaysia must balance economic opportunity with responsible resource management to ensure long-term digital resilience.
Opening remarks by Tindaro Danze, President & CEO, Siemens Malaysia
Malaysia is committed to becoming a regional digital hub for Asean and the Asia Pacific. However, achieving this vision demands strategic planning and execution, as multiple factors must be carefully managed.
For a start, data centres require vast amounts of water for cooling, whereby an average100 megawatt (MW) facility consumes approximately 1.5 billion litres annually - equivalent to 600 Olympic-sized pools. By 2027, projected capacity growth to 2.2 gigawatt (GW) could demand 35 billion litres, said Danze.
Energy consumption is another major concern, as a 100 MW data centre uses as much electricity as 45,000 households. By 2027, a 2.2 GW capacity would require power equivalent to 1.2 million households, nearly the entire population of Singapore.
Currently reliant on fossil fuels, data centres must transition to renewable energy, but grid infrastructure may not be equipped to handle this shift, making digital solutions essential for optimising energy distribution and managing grid loads.
Moving forward, discussions must address water and energy efficiency, carbon footprint, and regulatory challenges. He added that simply constructing data centres is insufficient - Malaysia must ensure these contribute to a thriving digital economy. A coordinated effort among stakeholders is needed to establish Malaysia as a meaningful technology hub while balancing sustainability and economic impact.
Keynote address by Digital Minister Gobind Singh Deo
Malaysia is rapidly positioning itself as a key digital hub within Asean, recognising the critical role of data centres in shaping its digital economy.
With a target to increase the sector’s contribution from 23 to 25.5 percent by the end of the year, the government is committed to fostering an environment that supports both technological growth and sustainability. Given Asean’s vast population of 700 million, digital infrastructure and AI will be essential in driving regional success.
To support this transformation, the government is actively shaping policies and governance frameworks that ensure Malaysia remains competitive and adaptable to technological shifts, said Gobind.
“This includes recently introduced data centre planning guidelines that streamline approvals while balancing industrial expansion with community well-being. Thoughtful site planning and zoning regulations are being put in place to mitigate disruptions, ensuring that development aligns with national priorities.”
However, the rapid growth of data centres also brings challenges, particularly in resource consumption. These facilities require significant amounts of power and water, prompting the government to prioritise sustainability. Measures such as the Green Lane Pathway and upcoming guidelines on power and water efficiency - expected in 2025 - reflect a commitment to responsible growth. Expanding Malaysia’s renewable energy capacity and streamlining approval processes for sustainable projects are central to this strategy.
Equally important is talent development. As Malaysia builds its digital infrastructure, bridging skill gaps remains a priority. Collaboration with industry players is key to equipping the workforce with expertise in cloud services, expanding IP backbone infrastructure, and enhancing subsea cable capacity. The launch of the National AI Office (NAIO) last December further underscores Malaysia’s ambition to lead in AI, ensuring the country has the right ecosystem to drive innovation, attract investment, and support key sectors like healthcare and urban planning, he added.
With 17 new data centres expected in Selangor alone, strategic planning will be crucial to balancing expansion with sustainability. The government stands committed to fostering an environment where industry can thrive, recognising that national success is inextricably linked to the success of the digital economy. The minister emphasised that as discussions on digital infrastructure continue, collaboration between government, industry, and experts will be vital in ensuring Malaysia remains at the forefront of the digital revolution.
The session continued with panel discussions.
Panel 1: Malaysia’s readiness to be a DC hub in Asia Pacific
Panellists:- Ir Megat Jalaluddin, President & CEO, Tenaga Nasional Berhad- Anuar Fariz Fadzil, CEO, Malaysia Digital Economy Corporation (MDEC)- Praba Thiagarajah, Group Executive Chairperson, Basis Bay- Charles Santiago, Chairperson, National Water Commission (SPAN)
Moderator:Hazrill Haniff, Vice-President & Head of Grid Software, Siemens Malaysia
Key points from the discussion:
The rising global demand for AI, e-commerce, Internet of Things (IoT), and cloud computing is fuelling the rapid growth of the data centre industry. Malaysia is well-positioned to become a regional hub due to its strong ecosystem, which includes key factors essential for data centre operations. These factors include a reliable power supply, water-based cooling infrastructure, sufficient land availability for construction, robust connectivity, and comprehensive security measures encompassing both physical and cybersecurity.
Additionally, Malaysia’s pro-business policies make it an attractive destination for investment, leading to increasing interest from major global players looking to establish data centres in the country.
While Malaysia has strong potential as a data centre hub, it must address gaps in policy clarity. Policymakers must act swiftly to establish foundational regulations, as setting up basic policies is an easy yet critical step that can accelerate progress.
Other countries, such as China and Vietnam, have already implemented clear standards, leaving Malaysia at risk of falling behind. Regulatory frameworks should be in place before the industry fully matures, not after. Therefore, key ministers and policymakers are urged to prioritise swift policy implementation to ensure Malaysia remains competitive in the global digital economy.
Reclaimed water must be a priority in the 13th Malaysian Plan, particularly for data centres and wafer fabrication. Countries like India have already implemented clear policies requiring industrial use of reclaimed water, starting at 50 percent and scaling to 100 percent. Malaysia must follow suit to ensure sustainable water management for its growing digital infrastructure.
In 2024, Selangor approved 27 new data centres, requiring 79 megalitres per day (MLD) of water, while Johor approved 17, demanding 59 MLD. Hyperscale data centres consume disproportionately high amounts of water, with some using the equivalent of seven to eight Olympic-sized swimming pools daily. Alarmingly, some approved hyperscale centres lack direct water sources, highlighting the urgent need for strategic approval limits and water planning.
Approval processes for data centres must be stricter and proactive, integrating reclaimed water solutions and rainwater harvesting at the design stage rather than as an afterthought. The government must enforce clear guidelines on the number and locations of hyperscale centres, considering increasing water demand from population growth, new industries, and wafer fabrication.
Advancements in AI are further driving up both energy and water consumption. Initial approvals may allocate 10 MLD, but rapid innovation can push this demand to 15 MLD within a year. Future-proof planning is essential to prevent shortages and ensure long-term sustainability.
To achieve sustainable planning, data centres must incorporate reclaimed water and rainwater harvesting from the outset. Current developments rely too heavily on potable water, an unsustainable practice. Developers and policymakers must shift toward alternative water-sourcing strategies before construction begins to safeguard Malaysia’s water resources.
Panel 2: Winning and sustaining business in the digital industry
Panellists:- Adilah Junid, Director of Legal And Government Affairs, Microsoft Malaysia- Cheam Tat Inn, Managing Director, Equinix- Darryll Sinnappa, Country Head, ST Telemedia Global Data Centres (STT GDC)- Reiner Cham, Sales Manager, Smart Infrastructure - Electrical & Automation (EA), Siemens Malaysia
Moderator:Karamjit Singh, CEO, Digital News Asia (DNA)
Key points from the discussion:
Malaysia’s data centre growth is supported by policies covering land and water management, as well as data security regulations that establish the country as a trusted hub. These policies provide a competitive edge by ensuring data sovereignty and intellectual property protection, attracting global businesses seeking a secure and well-regulated environment.
AI is driving a transformation in data centres, increasing the demand for computing power, storage, and network capacity. AI-ready data centres must be purpose-built, scalable, and sustainable to meet these growing requirements.
Cloud strategies are also evolving, with businesses shifting from exclusive public cloud reliance to hybrid models that combine on-premises and colocation. This cloud rebalancing allows organisations to maintain greater control over data, sovereignty, and compliance while gaining the flexibility to run workloads across different environments.
A new AI deployment model is emerging, shifting from moving data to the cloud for processing to bringing AI models directly to the data. This approach enhances regulatory compliance by ensuring data remains within national borders, accelerates AI operations across multiple geographies, and strengthens security for industries with strict data governance requirements.
As AI and digital services evolve, customer expectations are becoming more sophisticated. Users demand resiliency, scalability, availability, and security while maintaining control over workloads, including the ability to isolate certain processes. In the digital economy, AI, security, and trust are top priorities, and adoption must extend beyond large enterprises to benefit SMEs and the broader economy.
The rapid evolution of AI from 2022 to 2023 has significantly reshaped business and infrastructure needs. Companies must continuously innovate to remain competitive, yet many businesses are still in the early stages of AI adoption, requiring education and support to navigate this shift effectively.
Conclusion
Sustainability has emerged as a key demand from customers, with businesses committing to carbon neutrality by 2030. However, AI’s increasing processing needs are driving up power consumption, requiring responsible energy management.
The growing reliance on AI raises concerns about escalating power demand and environmental impact. The industry is actively debating solutions, including renewable energy adoption and efficiency improvements in data centres, to mitigate these challenges while sustaining AI advancements.
