Data Center: Power-Hungry Beast
The boom in data center construction has drawn billions in FDI from the world’s leading tech companies, making a significant contribution to the nation’s GDP in the coming years. However, this growth has also led to a sharp increase in the demand for energy and water resources. The national energy company, $TENAGA / 5347 (TENAGA NASIONAL BHD), remains the primary supplier and distributor of electricity in the country. Historically, many companies ( $MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) and $YTLPOWR / 6742 (YTL POWER INTERNATIONAL BHD)) have obtained licenses to operate independent power plants, contributing to a surplus in the national electricity grid.
Today, with the rapid rise of energy-intensive data centers, there is growing concern about whether the country will have sufficient energy supply to meet this increased demand. Peninsular Malaysia's power generation is heavily dependent on coal and natural gas, with renewable energy sources still in a nascent stage of development. Deputy Minister of Energy and Natural Resources stated in Parliament that the country’s energy reserve margin is projected to be between 28% and 36% from 2024 to 2030, reflecting the government's cautious optimism about meeting future energy demands.
According to TNB’s annual report, the company received 63 data center applications last year, mainly from Johor and the Klang Valley. As of April this year, 11 data centers, totaling 1,156 megawatts, have been connected to the grid. However, the total power requested from all applications amounts to 8.2 gigawatts, meaning less than 15% of this demand has been met. Given that these applications were submitted in 2023, and with new data center projects being announced this year, the actual demand for energy far exceeds current figures.
It's important to note that several countries, including Ireland, Germany, Singapore, China, and the United States, have imposed significant restrictions on data center construction due to environmental concerns. However, the Malaysian government has proactively launched the National Energy Transition Roadmap (NETR) and promoted various green energy initiatives, such as encouraging the installation of photovoltaic panels on rooftops and developing LSS projects, all aimed at increasing the production of green energy. The government has also introduced the SAVE program, offering rebates to buyers of energy-efficient appliances.
These initiatives are promising, but the question remains whether they can keep pace with the growing energy demands of these data centers. Despite Malaysia's abundant sunlight, photovoltaic panels only generate power during daylight hours, meaning that a 100-megawatt data center might require 400 to 500 megawatts of solar power to meet its needs.
The surge in data centers presents economic opportunities. Domestic companies, such as those involved in solar's EPCC, including $SLVEST / 0215 (SOLARVEST HOLDINGS BERHAD), $SUNVIEW / 0262 (SUNVIEW GROUP BERHAD), SAMAIDEN, and PEKAT, as well as LSS players like RANHILL, UZMA, JAKS, GOPENG, and RENEUCO, stand to benefit. Additionally, the stock prices of companies producing cables and related electrical components, and those involved in cable-laying projects, have also increased a lot. Independent power plants whose contracts are nearing expiration might also find opportunities for renewal as the demand for energy surges.