Malaysia's data centre rules: approvals, power contracts, tariffs, water

Malaysia has moved from welcoming almost any data centre to checking whether each one can show real demand, power and water. New projects need task force approval, power contracts carry a penalty for unused capacity, and water planning in Johor is being reworked. Several of these rules are reported through ministries and press, not published texts.

This is a policy post. The companion article, Singapore and Malaysia AI data centres: power, water and Johor, covers the market and the numbers. Here the question is narrower: what are the rules, who applies them, and what do they mean for a company planning AI capacity in Malaysia? For the Singapore side of the story, see how Singapore allocates data centre capacity.

Key numbers at a glance

• Data centre investment approved by the trade ministry (MITI), 2021 to 2023: RM114.7 billion, or 79 percent of approved digital investments in that period (The Edge Malaysia, July 2024).
• Data centre and cloud computing projects attracted in the first half of 2026: RM95.8 billion (MIDA, as reported by The Edge Malaysia, 8 September 2026).
• Share of national electricity used by data centres: 9.28 percent per the Energy Commission chief executive (The Edge Malaysia, 8 September 2026), against 7 percent given to Parliament in July 2026 by the Deputy Prime Minister.
• Projection: about one third of Malaysia's electricity by 2035, per the Deputy Prime Minister in Parliament (The Edge Malaysia, September 2026).
• Installed generation capacity: 27,333 megawatts in 2025, with a peak demand of 21,049 megawatts recorded on 28 May 2025 (Energy Commission data, via The Edge Malaysia).
• Johor live data centre capacity: 1,110 megawatts, with 8,542 megawatts incoming (Knight Frank Data Centre Atlas 2026, July, via The Edge Malaysia).
• Tenaga Nasional signed supply agreements: 8.35 gigawatts, a large portion in Johor, with another 5 gigawatts expected (Hong Leong Investment Bank note, via New Straits Times, 18 September 2026).
• Utilisation rule: 85 percent of declared maximum demand in the first four years, 75 percent in years five and six, with a penalty of RM8.50 per kilowatt of shortfall (MITI, as reported by The Edge Malaysia, December 2025 to January 2026).
• Base tariff, Peninsular Malaysia: 39.96 sen to 45.62 sen per kilowatt hour from 1 July 2025 (TNB and Energy Commission figures, via W.Media, 26 June 2025).
• Johor water demand from data centres: about 400 million litres per day, an investment bank estimate (HLIB via New Straits Times, 18 September 2026).
• Johor water reserve margin: 11.5 percent in 2022 and 16.9 percent in mid 2024 (regulator SPAN chairman, via The Edge Malaysia, July 2024).

Why the rules changed

For a few years the main story was growth. When Singapore paused new data centres in 2019, and until it reopened capacity in 2023, Malaysia attracted investment. The Edge Malaysia's July 2024 report links part of the rise in investment to that Singapore pause. Johor, just north of Singapore, drew 50 data centre investments in two years, according to the state's chief minister as quoted there.

Then a problem showed up in the numbers. The January 2026 W.Media report on the new rules, citing MITI, describes "phantom demand": power requested by projects far in excess of what they actually use. If a utility builds generation and grid lines for a data centre that never fills its halls, other customers pay for assets that sit idle. Regulators call these stranded assets.

The Edge Malaysia's end of 2025 article quotes MITI saying that there is no official published estimate of the possible cost of stranded assets, though the government and the Energy Commission are aware of the risk. It also quotes Tenaga Nasional saying that capacity is typically built ahead of demand, in line with global data centre practice.

Both views are reasonable. Utilities do need to build before customers arrive. The policy question is how much speculation they should carry. Malaysia's answer, set out below, is to require proof up front and charge for unused reservations.

Rule 1: approval from the Data Centre Task Force

According to MITI, as reported in The Edge Malaysia in the 29 December 2025 to 4 January 2026 issue, new data centre projects need mandatory approval from a Data Centre Task Force before they proceed. MITI co-chairs it with the Digital minister. Its members include the ministry responsible for energy transition and water, the Energy Commission, Tenaga Nasional and the national water services regulator SPAN.

MITI says the task force is the sole licensing authority for prioritising high value investment, including high density AI computing clusters. What an applicant must show:

• Concrete evidence of secured demand, such as offtake agreements, meaning contracts under which a customer agrees to buy the capacity.
• Proof of financial closure, meaning the funding for the project is arranged.
• A plan that the energy and water agencies can check against supply.

In the September 2026 report, MITI is also quoted saying projects will be approved only when energy and water supply capacity is shown to be sufficient.

The task force can also act after approval. MITI says it can review projects, identify underused ones and reallocate their reserved capacity to active AI driven investments. That is a significant power. It turns a power reservation from a permanent entitlement into something that can be lost.

The January 2026 W.Media article adds that the Energy Commission revised its supply planning for Peninsular Malaysia to base forecasts on validated data, and now speaks directly with the large cloud companies about their business models.

Rule 2: pay for what you reserve

The second change sits in the electricity supply agreement, the contract between a data centre and Tenaga Nasional.

Under the arrangement as MITI describes it, a data centre declares its annual power demand and does not lock in its full capacity on day one. That suits phased build outs, because a campus with several halls fills them over years. But the declaration has teeth:

• Data centres must use 85 percent of their declared maximum demand in the first four years, measured against each facility's declared annual demand.
• In years five and six, the requirement drops to 75 percent, measured against total declared demand.
• A shortfall triggers a penalty of RM8.50 per kilowatt, calculated monthly and shown as a separate item on the bill. MITI says the rate may change, and that the penalty is financial and will not disrupt service.
• A separate Connected Load Charge applies to medium and high voltage consumers and runs for six years from the supply connection date. If a customer misses its targets within that period, a make up charge appears on the monthly bill.

The practical lesson for buyers is that a power reservation is no longer free. Operators now have a reason to declare realistic numbers. Developers who planned to secure large amounts of power and sell the position later face a cost for holding it idle, and the cost grows with the size of the unused reservation.

The phased design matters too. Because operators declare annual demand and the Connected Load Charge runs six years, a campus built in stages is not forced to fill everything at once. As described, the rule asks for steady progress, not instant occupancy.

Two cautions. First, these details come from ministry statements as reported by The Edge Malaysia and W.Media, and the rates may change, so confirm the current terms with Tenaga Nasional or the Energy Commission. Second, the reports describe the rules for Peninsular Malaysia. The reports do not describe other regions.

Rule 3: a new electricity tariff

Electricity prices changed on 1 July 2025. W.Media reports that Tenaga Nasional introduced a new tariff structure, approved by the Energy Commission, raising the base tariff from 39.96 sen to 45.62 sen per kilowatt hour under the regulatory period that runs from 1 July 2025 to 31 December 2026.

The structure is voltage based. Bills have five components: energy, an automatic fuel adjustment that changes monthly, capacity, network and retail. W.Media lists fixed charges of 4.66 sen per kilowatt hour for capacity and 12.85 sen per kilowatt hour for network. W.Media also reports a 1.6 percent Renewable Energy Fund charge on all customers except small domestic users.

The article quotes a property consultant, Samuel Tan of Olive Tree Property Consultants, who expects data centres, as high voltage users, to see higher network and capacity charges. He also notes that time of use pricing, which offers lower off peak rates, may bring little benefit because data centres run around the clock and cannot easily move load. These are one analyst's views, not official findings.

Operators have alternatives. W.Media describes the Corporate Renewable Energy Supply Scheme, known as CRESS, which lets a data centre buy renewable power directly from a generator through the open grid, with an access fee that helps pay for network upgrades. It reports a 400 megawatt deal between Bridge Data Centers and Tenaga Nasional, and a 500 megawatt deal between DayOne and Tenaga Nasional, under that scheme. MITI also describes a Green Lane pathway from Tenaga Nasional that fast tracks connections for critical digital infrastructure, as reported by The Edge Malaysia.

Because the 2025 regulatory period ends on 31 December 2026, the tariff may be reviewed. No decision for the next period had been published as of 19 October 2026, so the numbers above should be treated as current only for that window.

Rule 4: water, still being built out

Water rules are the least settled of the four, and the evidence is older.

The Edge Malaysia reported in July 2024 that Malaysia had no specific regulations governing data centre water or energy use at that time, and that the communications regulator was drafting a green data centre technical code. A final code had not been published in the sources cited here, so do not assume one exists.

What did exist in 2024 was planning data from SPAN and the Johor water operator, Ranhill SAJ. According to that report:

• Johor's total water use in 2022 was 1,407 million litres per day.
• Normal annual demand growth is 2.5 percent, around 50 million litres per day. SPAN's chairman said data centre requests add on average 26 million litres per day each year until 2036, which he described as an extra 1.3 percent per year.
• A typical 100 megawatt data centre uses about 4.2 million litres per day, the article says, and Google's average data centre used about 1.7 million litres per day in 2021.
• Data centres had applied for 439.67 million litres per day for 2024 to 2035. About 316.38 million litres per day had been supported and 30.51 million had not yet been.
• Johor's reserve margin, the cushion of supply over demand, was 11.5 percent in 2022 and 16.9 percent when the chairman spoke. Ranhill SAJ targets 25 percent by 2029. Non revenue water, meaning treated water lost to leaks or unbilled use, was 26.3 percent in 2022.

Newer figures come from an investment bank. A September 2026 note by Hong Leong Investment Bank, reported by the New Straits Times, estimates total data centre water requirements at about 400 million litres per day and says Johor's August 2025 water tariff increase supports further water infrastructure spending, including an expected RM3.5 billion on treatment plants. That is an analyst view of one company's prospects, not a government plan, and the fact that its 400 figure resembles the 2024 application total should not be read as confirmation of either number.

The Johor government said in 2024 that it was drafting state data centre planning guidelines with the planning agency, and had set up a coordination committee with state and federal agencies. The task force's membership, which includes SPAN, suggests that water now sits inside the approval process. Whether this changes how much water a new campus is given has not been stated publicly.

How Malaysia's approach differs from Singapore's

The two neighbours solve a similar worry in different ways.

Singapore controls supply at the front. The government releases a fixed block of capacity, such as 200 megawatts in the second call, and picks winners by strategic value, economic contribution and sustainability. Operators who win then have to meet strict efficiency and green energy conditions.

Malaysia controls demand claims. Its task force screens projects for evidence, its supply contract charges for unused reservations, and its tariff raises costs for high voltage users. The aim, as MITI describes it, is to stop speculative power requests from crowding out real ones, while still welcoming AI investment.

Neither approach is obviously better. Singapore's method gives the state a firm cap on total load. Malaysia's method leaves room for more growth but depends on the quality of the checks and carries execution risk for the grid. For a customer, the practical difference is that Singapore capacity is released in set blocks, while Malaysia has a very large reported pipeline whose delivery depends on grid and water works that are still under way.

What the policy means for builders and buyers

Putting the four rules together, a developer in Malaysia now faces this sequence:

• Prove demand and money to the task force.
• Declare power demand realistically in the supply agreement and plan to use at least 85 percent of it in the first four years.
• Pay a higher tariff than before or contract renewable power directly.
• Show that water supply exists, and expect local scrutiny in places like Johor.

For AI customers, the point is delivery risk. A capacity announcement is not the same as energised power. The 8.5 gigawatts of incoming capacity in Johor is a pipeline figure, and the rules above are designed to weed out the part of it that is speculative. How much that will be is unknown.

For how labs and cloud providers weigh these factors, see Anthropic compute commitments explained. For chip supply questions that run alongside power, see AI chip market share in 2026.

What is firm and what is uncertain

Firm, in the sense that a ministry or regulator statement was reported by named outlets:

• The task force approval requirement, the 85 percent and 75 percent utilisation levels and the RM8.50 per kilowatt penalty.
• The 1 July 2025 tariff change for Peninsular Malaysia.
• Data centres at 9.28 percent of electricity per the Energy Commission chief, with a different 7 percent given to Parliament.

Uncertain:

• The RM8.50 rate may change, and details such as how shortfalls are measured need confirmation from the contract itself.
• The two electricity shares differ. They may reflect different dates or definitions, and the reports do not say.
• The one third by 2035 projection is a stated expectation, not a forecast with a published method.
• Water figures are from 2024 and a 2026 analyst note. No official current Johor water allocation for data centres was confirmed.
• Whether a national green data centre code now exists was not confirmed.
• Pipeline figures such as 8,542 megawatts are third party market estimates and include projects that may never be built.

What to watch next

• The Energy Commission's tariff decision for the period after 31 December 2026.
• Whether the task force reallocates reserved capacity from idle projects, and how it reports that.
• Any published Johor planning guidelines for data centres.
• Water supply milestones, such as treatment plant upgrades and the reserve margin.
• Whether the penalty rate or the 85 percent threshold change.

For teams tracking the software running in these facilities, Safeguard offers SBOM and dependency scanning, with a free scan at https://gold.safeguard.sh/scan.

Quick check

Sources

• The Edge Malaysia, data centre approvals and tariffs, December 2025 to January 2026
• W.Media, Malaysia tightens rules to prevent phantom power demand by data centers, 15 January 2026
• The Edge Malaysia, data centres and electricity, 8 September 2026
• The Edge Malaysia, water investment and data centres, July 2024
• New Straits Times, Ranhill set to ride Johor's data centre boom, 18 September 2026
• W.Media, Data centers in Malaysia brace for higher electricity bills, 26 June 2025

Last reviewed: 19 October 2026.