Data Centers in Southeast Asia: Go green, or go home

If data is the new oil, then data centers are the new oil rigs. 

Driven by the AI boom, the demand for data centers has surged exponentially. The trend is set to be on a clear upward trajectory – an April 2025 McKinsey report stated that the data centers industry will require US$7 trillion of capital investment in the next 5 years in order to keep up with demand. 

Southeast Asia (SEA) has benefitted from the trend and emerged as a hub for data centers. Among key players are Singapore, Malaysia, Thailand and the Philippines. Currently covering about 45% of the ASEAN data center market, Malaysia stands out as an attractive go-to location given its strategic advantages: availability of cheap land, water, power, robust connectivity with global submarine cable networks, and close  proximity to established hubs such as Singapore.  

But behind all the hype lies an ugly truth – that data center investors are keenly eyeing and targeting countries that provide the lowest operational costs so that they may extract the greatest value. A case in point is how the recent electric tariff hike announced by Malaysian National Power Company, Tenaga Nasional Berhad (TNB), immediately jolted (pun intended) the investors to look elsewhere for cheaper alternatives. Just like the competitive dating scene of our modern society, suddenly Malaysia is no longer attractive as a destination.

If it sounds familiar, that’s because it is the exact same script of the neo-colonialistic economic opportunism that drove corporate globalization in developing countries in Africa, South America and Asia. Just as foreign companies moved operations abroad to destinations offering cheaper labor & land, a similarly exploitative model is in play along the AI & digital supply chain today. 

How big is the problem? 

At its core, data centers are an extremely resource-intensive business. For reference, it is estimated that the world’s data centers use about as much energy every year as the entire country of Italy. A hyperscaler, which typically has a power demand of 100 MW, is said to consume electricity equivalent to what 45,000 households use and use water equivalent to a 10,000-person city to run the cooling systems necessary to maintain the servers. 

Already, data centers put a strain on Malaysia’s energy and water resources, a fact that the government has publicly admitted. The potential electricity demand from data centers in Malaysia will hit a total maximum demand of 5 GW by 2035, which amounts to one-fifth of total electrical capacity (~27 GW) currently installed for all of Malaysia. To meet industrial demand, Malaysia’s power company, TNB said it will have to increase 40-50% of its gas-fired power capacity by 2030. The surge of demand and shortage of supply will in turn push electricity prices up, and leave consumers and residents to bear the increased costs.  

It is pertinent that the focus of the conversation shifts from the financial costs to the social and environmental costs inflicted on countries and Malaysia by the data center industry. Already, across the world construction of data centers have been met with protests as they compete for spaces and resources with the local communities, notably in the US, Netherlands, the UK & Ireland. In the US, $64 billion projects have been stalled between May 2024 to May 2025 amid local opposition – most recently in Tucson, Arizona where the residents successfully thwarted a planned data center project by tech giant Amazon. 

What to do?

It is understandable that governments across SEA want to jump on the data center  bandwagon, but attracting investments with low prices is a sheer race to the bottom. Malaysia & SEA must get ahead of the curve to come out on  top of the game. Instead of perpetuating the entrenched governance philosophy of keeping environmental & social concerns an afterthought, countries in the region should take the lead in driving a green transition in the data center industry. 

Governments must drive the building of green data centers by being selective in the approvals of projects. Data centers  must pledge renewable energy use, installation of energy-efficient infrastructures including advanced cooling systems, as well as sustainable practices in waste management. Rather than offering tax incentives to those who meet those standards, it should be a mandatory requirement with penalties on those who don’t. 

At the same time, the government can also accelerate the process by providing grants in building retrofitting and funding research & innovations that boost data centers’ energy efficiency. The construction of green data centers will result in more capital spending, which in turn will create spillover effects and help spur economic growth. In the long run, operators can also optimize performance and lower operating expenses. 

Conclusion

Meeting the massive energy demand of the new AI era, as the world races against time to combat climate change, is one of the biggest global challenges of the century. Like the discovery of oil, the AI revolution stands to have a systemic impact on our world. But unlike oil, data is not finite, hence we run the risk of accelerating the process indefinitely without considering its potentially collapsing impact on our planet and society. 

Malaysia & Southeast Asia face an option: to allow our resources to continue being exploited by multinational corporations, or to set the global standard for a sustainable way forward for the power-hungry data center industry. Let’s not let history repeat itself. Data centers must either go green, or go home.   

Written by Ivy Kwek