THE regulatory initiative by the Malaysian Energy Transition and Water Transformation Ministry may carry some degree of risk for data centre builders and operators already engaged in the construction of campuses or facilities.

This is because a sustainability-linked regulatory framework could represent a (temporary) loss for some investors as they may be forced to bring their facilities up to compliant standards, according to BMI Country Risk & Industry Research.

“In 2024, it is common for the Malaysian market to feature developments in the 200MW range, meaning that such sites are built in multiple phases and facilities,” the research house pointed out in its latest report.

“Some of the early phases of the latter campuses that are already built or are being built may not comply with the upcoming regulations.”

As it is, a similar situation is already taking place in Germany as a result of the local Power Usage Effectiveness (PUE) regulation which could represent a key driver of market shares reconfiguration over the medium to long term.

“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,” opined BMI

“Finally, we believe it is unlikely that the upcoming regulation may translate into temporary data centre moratoria imposed in local zones like Johor. Potentially, data centre projects may begin to relocate internally towards new areas away from Johor and Kuala Lumpur.”

As per BMI’s estimates, investors active in Malaysia have announced a record amount of data centre projects between 2023 and 1H 2024 that will cumulatively provide over 2.11GW of power.

In 1H 2024 alone, investors have disclosed data centre infrastructure investments totalling 850MW which is close to 2023’s announced total of 1.26GW.

BMI further expects future inflows of data centre investments to Malaysia “to cool down” as new requirements to operate locally are imposed.

“Some players may not be financially or technologically able to meet such requirements. Because of the latter reasons, some investors may forfeit entering the Malaysian data centre market altogether,” projected the research house.

“While the appeal of each data centre market in Southeast Asia varies extensively, some favoured destinations may well be Indonesia and Thailand. Other regional options that investors are exploring involve the Philippines as its data centre market may be able to service the digitally mature East Asian economies of Japan and South Korea.” - Aug 8, 2024 

https://focusmalaysia.my/malaysias-data-centre-sustainability-framework-may-pose-risks-for-data-centre-investors-owners/