The Economist Intelligence Unit (EIU) in a report on Wednesday highlighted the importance of reliable power for DCs, citing power issues and ‘struggling grids’ in other parts of the world.
KUALA LUMPUR (Aug 21): With data centres (DCs) straining national power grids elsewhere, prompting Big Tech to explore alternative power sources to reduce emissions, Malaysia may still rely on conventional power for DCs at home, said experts.
The Economist Intelligence Unit (EIU) in a report on Wednesday highlighted the importance of reliable power for DCs, citing power issues and ‘struggling grids’ in other parts of the world. It also suggested that Big Tech will expand their DC investments mostly in Asia, where land and power resources are abundant.
“Understandably, governments are anxious about how already struggling grids will cope with the extra electricity consumption as artificial intelligence (AI) usage increases. The UK’s National Grid foresees a sixfold jump in electricity demand from data centres from now until 2034, driven by AI-related data processing.
“Meanwhile, tech companies, which build data centre hubs, are taking pre-emptive measures as governments intensify energy usage and emissions reporting standards,” said the EIU.
At home, RHB Research in a note on Tuesday suggested that Malaysia may need to rely more on conventional power generators and increase base-load supply, particularly through efficient combined cycle gas turbines, to avoid blackouts and meet the rising demand from 24/7 DC operations.
“That said, in the long run, there might be a mismatch between energy supply and demand, especially when electricity supply is largely dominated by renewable energy (RE) — and RE plants presently cannot provide constant and stable output to the grid.”
RHB noted that short-term power purchase agreements (PPAs) for gas plants involving Edra Energy, Tenaga Nasional Bhd or TNB (KL:TENAGA), and Malakoff Corp Bhd (KL:MALAKOF) are expected soon, with potential extensions if demand grows. New gas-fired plants could replace coal plants by 2029, possibly built within 48 months.
RHB noted that this is also in line with the National Energy Transition Roadmap’s projection, whereby gas will continue to be the dominant source of fuel for baseload power, although the gas capacity mix is projected to decline to 29% in 2050, from 42% in 2025.
“This still suggests a decent growth of 9GW, from 19GW to 28GW. With that, we believe existing independent power producers (IPPs) such as TNB and Malakoff are likely to see new gas-fired plant expansion in the future, following the retirement of existing coal-fired plants. However, we may see a higher reliance on liquefied natural gas supply, while energy security remains a key factor, given the limited availability of domestic gas feedstock.”
All said, RHB is upbeat about the developments of DCs as a growth driver of the power sector.
“We remain positive on the utilities sector. This is premised on: i) the mushrooming number of DC developments, which will ramp up growth in electricity consumption; ii) continuous power grid upgrades, which will increase regulated net returns; iii) experienced IPPs bridging the supply gap and; iv) domestic RE capacity additions anchoring contractors’ job flows,” it said.
RHB noted that Peninsular Malaysia’s electricity consumption growth over the next decade is expected to surpass the 10-year average of 2.4%, led largely by continuous expansion of DCs.
“We see DCs’ energy consumption alone having a compound annual growth rate of 1.6% to 2.6% between 2023 and 2035, if 3GW to 5GW of DCs are to be fully operational by 2035,” it added.
RHB said the government had projected the reserve margin at 28% to 36% for 2024-2030, and to accommodate such strong demand, it is understood that there are ongoing one-plus-one-year short-term power purchase agreement (PPA) bids for the near term.
“We do not discount the possibility of PPAs being extended for gas-fired plants, and believe IPPs that are experienced in running gas-fired power plants — such as TNB and Malakoff — should benefit from additional gas capacity expansion in the long run [to replace coal],” said the house.
All eyes on RP4
Meanwhile, the market expects the Regulatory Period 4 (RP4) to include potential tariff restructuring for energy exports and wheeling charges, with outcomes expected by year end.
RHB anticipates a 25% to 40% increase in average regulated capital expenditure (capex) to between RM8.6 million and RM9.6 billion annually, driven by a 3% to 4% rise in demand and a stable weighted average cost of capital of 7.3%.
It said regulatory net returns could rise by 1.34% for every RM1 billion increase in average capex.
Solar energy growth remains strong due to favourable policies, falling panel prices, and upcoming projects like the Corporate Green Power Programme and Large-Scale Solar 5, though risks include slower RE capacity roll-outs and higher operating costs, it added.
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Source: EdgeProp.my
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