Malaysia data centres: can clean energy keep up?

Summary

Data centres now consume 3% of electricity on Malaysia's Peninsular grid, a threefold increase from a year earlier.

Scenario Builder’s capacity expansion model indicates that Peninsular Malaysia can meet rising electricity demand through 2029 without major new capacity additions, but gas utilisation could increase by as much as 76% compared to current levels.

From 2030 to 2035, coal phase-out could prompt a substantial build-out of new gas capacity – potentially reaching 23 GW by 2035 – unless clean energy deployment and cross-border imports expand both significantly and rapidly.

Malaysia’s data centre growth to test the grid

The data centre industry is beginning to leave its mark on Malaysia’s power sector.

According to the latest reports from Tenaga Nasional Berhad (TNB), the state-owned utility that operates the Peninsular Malaysia grid, electricity consumption from data centres reached 3% of total demand in the first nine months of 2025 – a three-fold increase from the same period last year. This rapid growth drove overall commercial electricity demand up by 7.7% year-on-year, even as industrial and residential consumption fell.

Crucially, TNB continues to onboard a strong pipeline of new data centre projects at a consistent pace, signing new Electricity Supply Agreements (ESAs), which are prerequisites for construction to begin.

As of September 2025, the utility had signed 49 ESAs with data centre developers, representing a total future demand of 7.1 GW. Of these, 29 projects with a combined demand of 3.8 GW had already been completed by September 2025. This capacity is equivalent to around 13% of Peninsular Malaysia’s system capacity today.

The rapid expansion of data centres reflects the government’s welcoming stance toward the industry, particularly relative to regional peers. Investments have accelerated markedly since the introduction of the Green Lane Pathway in August 2023, which aims to fast-track approvals and expedite grid connection for data centre operators. Other factors have furthered the Malaysia market’s attractiveness, including the absence of energy efficiency and sustainability mandates for these facilities, and improved regulatory frameworks that facilitate clean energy access and procurement.

Official projections estimate that electricity demand from data centres could reach 7.7 GW by 2030, and as much as 20.9 GW by 2040.

These developments pose critical questions for system planners and policymakers:

• Can the Peninsular grid absorb such a sharp and sustained increase in demand?
• What are the implications for the existing coal and gas power fleet? Will their retirements be delayed?
• And how much additional capacity – whether gas or renewables – will be required to serve this new demand?

To explore some of these issues, we used Scenario Builder’s capacity expansion model to simulate the future of Peninsular Malaysia’s power system. The model provides a structured framework for analysing how different policy choices, investment pathways and technology cost trajectories could shape the grid’s evolution.

Here, we present one such scenario.

Model and scenario setup

We modelled Malaysia as a 3-node system, which would enable results and analysis of the Peninsular grid separate from the other grids. The configuration was as follows:

To align with Malaysia’s key power sector policies, targets, and pipeline projects, several constraints were incorporated via the input parameters:

For full details on the input data, please visit our documentation here.

Rising gas utilisation and clean energy crossroads

The outcomes under these assumptions yield the following insights.

The 2025-2029 outlook: Adequate capacity but demand could drive up gas utilisation by 76%

The existing generation fleet appears broadly sufficient to meet rising demand through 2029, with limited need for new capacity additions. Furthermore, the four- to five-year lead time required to bring a new gas plant online constrains large capacity expansion in the near term, besides those already under development today.

However, increasing demand significantly raises utilisation of the existing coal and gas plants, leading to higher overall system emissions unless renewable capacity expands more rapidly.

By 2029, the annual utilisation rate of the gas fleet is projected to rise to 66% from 38% in 2025. Coal plants will also be dispatched close to their technical limits, set at 80%, wherever available. Overall, fossil fuel generation will continue to dominate the mix, accounting for 88-92% of total generation.

Although solar capacity nearly triples to 9.5 GW by 2029, surpassing the NETR targets, its contribution remains modest, at only 7% of total generation. Total renewable penetration, including hydropower, reaches just 12%.

The uncomfortable truth is that large consumers with sustainability targets, such as data centre operators, may need to actively pursue corporate clean energy procurement options, as the Peninsular grid’s emissions intensity is likely to remain high in the near term.

Post-2030 opportunities: Coal retirements and the choice between gas or alternative sources

In response to public feedback, the Malaysian government and TNB have reaffirmed their commitment to phasing out coal, including the non-extension of existing coal PPAs upon expiry.

If scheduled retirement of several coal plants – Sultan Aziz, TNB Janamanjung GF 1, Jimah Power, and Tanjung Bin – proceed as planned between 2029 and 2032, a combined 7.2 GW will be gradually removed from the system. Under this assumption, the model indicates that new combined cycle gas capacity would be deployed to meet growing demand. Gas capacity would reach 23 GW by 2035, a two-fold increase from today.

Solar capacity is projected to grow steadily, and begins to be supported by battery storage from 2030 onwards. Higher solar penetration contributes to a modest decline in the fossil share in total generation – down to 78% by 2035 – but fossil fuels continue to remain the dominant source.

Time to speed up clean energy pathways

This scenario highlights a key structural risk for Malaysia: rising dependence on natural gas.

Malaysia’s domestic gas reserves are already in decline and reliance on imported LNG has intensified in recent years; imports rose 27% between 2019 and 2024, to 4.2 bcm. Expanding the gas fleet to 23 GW by 2035 could deepen exposure to global price volatility and drive up generation costs.

The next five years will therefore be critical in positioning Malaysia to meet rising electricity demand from energy-intensive data centres with cleaner and more secure power sources over the long term.

TNB appears to be exploring external power sources, which have thus far played a limited role in the Peninsular’s energy mix. Enhanced cross-border electricity imports – whether from southern Thailand or via new subsea connections to offshore wind projects in southern Vietnam – could help offset domestic gas generation and diversify the supply portfolio towards low-carbon sources. The key question is how quickly these options can be advanced before the system locks in additional long-lived gas capacity.

Build your own scenario

There are many ways to model the dynamics and trade-offs involved. With Scenario Builder, users can test alternative pathways that vary the pace of data centre growth, renewable deployment and coal retirements, helping to reveal the pressure points that lie ahead.

Visit Scenario Builder now and build your own model of Peninsular Malaysia.