Will new tariff structure crush Malaysia's data centre growth?
The reasons for the uproar.
Electricity pricing is up in Malaysia, and data centre operators, stakeholders are in a tizzy over the steep increase. Will it torpedo data centre demand?
Overhaul of electricity pricing
Malaysia's TNB has introduced new tariff rates for electricity, which kicked in yesterday.
As I wrote last week:
- A complete overhaul of how electricity is charged.
- Voltage-based; impact on heavier users.
- Fuel surcharge reviewed monthly.
To be clear, the tariff was first unveiled in December 2024 and fleshed out in May.
Data centres pay the price
What's the real-world impact on data centres? Most large data centres are expected to fall in the ultra-high voltage category with the highest tariffs.
This means:
- Data centres in Malaysia may see their bill rise by up to 15% to 20% under this new tariff structure.
- Gary Goh did some calculations and told The Edge that it's an additional US$15-20 million annually for a 100MW data centre.
Note that this is excluding a fuel surcharge, currently set at zero. The surcharge reflects fuel prices and will now be reviewed monthly, instead of every 6 months.
Paying for a sustainable grid
Why the price increase? Why now?
- It's worth noting that Malaysia currently has one of the cheapest electricity costs in ASEAN. Some argue that it's past time for a review and the income funnelled towards boosting social spending.
- Data centre growth has been extraordinary over the last few years. The new tariff structure will see data centre operators account for a higher share of grid management costs.
So why are data centre operators and hyperscalers in Malaysia - the key beneficiaries of the boom - scrambling now?
Why the uproar?
I did some asking around and here's what I found out from insiders.
- Very short notice
Key details of the tariff structure only emerged in early June, and even then, only to a handful of the largest operators.
Without the ability to calculate the exact impact on their operations, most data centre operators are left blindsided by the sharp increase.
- Too much, too soon
The data centre industry in Malaysia has seen multiple price increases in recent years.
- Rising land costs*.
- Rising construction costs*.
- New power tariff (This).
- Service tax from 6% to 8% on July 1st.
*Expected
And:
- Fuel surcharge (0% currently).
- Upcoming water tariff (No details yet).
The top worry right now?
The price increases could push overall costs into infeasible territory, and drive demand to other markets.
