The government’s plan to implement sustainability standards in the domestic data centre industry could have significant implications for competition within the market, according to a report by Fitch Solutions company BMI. The proposed regulatory framework by the Ministry of Energy Transition and Water Transformation may pose risks for data centre builders and operators who are currently constructing facilities that may not comply with the upcoming regulations.
BMI highlighted that in 2024, the Malaysian market is expected to witness developments in the 200MW range, with sites being built in phases. This means that some existing or under-construction data centre facilities may not meet the new sustainability standards, leading to potential losses for investors who will have to upgrade their facilities.
Similar situations have been observed in countries like Germany where regulations have reshaped market shares over time. Data centre operators with strong sustainability credentials are likely to have a competitive advantage over others in the market, according to BMI.
Despite concerns about compliance and potential slowdown in investments, BMI estimates show that Malaysia has seen a significant increase in data centre projects announced by investors, totaling over 2.11 gigawatts between 2023 and mid-2024. This includes 850MW of investments in the first half of 2024, almost matching the total investment in 2023.
However, with the new operational requirements and sustainability regulations, some investors may struggle to meet the standards, leading to a possible shift of projects to neighboring markets like Indonesia, Thailand, and the Philippines. These countries could benefit from redirected investments and serve the digital economies of Japan and South Korea in the region.
Deputy Energy Transition and Water Transformation Minister Akmal Nasrullah Mohd Nasir emphasized the importance of energy and water supply frameworks for the data centre industry, aligning with the National Energy Transition Roadmap’s sustainability focus. This emphasis has attracted foreign investors to participate in the Malaysian market.
Overall, the introduction of sustainability regulations in the data centre industry is expected to bring about changes in the competitive landscape, with operators needing to adapt to meet the new standards to stay relevant in the market. Investors will have to weigh the costs of compliance against the benefits of having a competitive edge in a rapidly evolving industry.