By Alistair LaBrooy – 16th August 2024

DATA centres are the backbone of modern digital infrastructure, powering streaming, online shopping, cloud computing and artificial intelligence (AI). As reliance on these services grows, so does electricity demand. AI alone consumes 10 to 15 times more power than traditional cloud services. For instance, Microsoft and OpenAI’s Stargate AI data centre requires five gigawatts of power equivalent to Johor’s total power output.

The rapid rise of AI in the areas where it was first developed and adopted, created a strain on the resources such as power and water which traditionally were seen as sta- ble and uninterruptable services. The US alone is expected to see power capacity increase by 40% over the next 20 years, compared with a mere 9% growth over the previous two decades.

As a result, data centres aided by state and federal governments are now scrambling for new sites to fulfil their operational requirements. But is power the only resource that attracts data centres to a location?

Site selection challenges

Most people trying to get into the data centre game think that just hav- ing a large tract of industrial land with a large electricity substation (PMU) on-site guarantees success. While it is true that a lot of power is an attrac-

tion, the average hyperscale data cen- tre building consumes between 50 to 100 MW per five-to-six-acre lot, the reality is that data centres have far more complex ecosystems that need addressing. For instance:

Data centres also need vast amounts of water for cooling, making energy efficiency and resource availa- bility critical.

Proximity to major internet hubs and robust infrastructure is also vital as it improves performance, reduces latency, lowers costs, and allows for seamless scalability.

Combine that with other considera- tions such as natural disaster risks, government incentives, supply chains, connectivity, and customer access, and it is evident that choosing a data centre site is a delicate balancing act.

A data centre site selection process typically involves a multi-million-dol- lar study that narrows down from region, country, state, and eventually to the optimal site for operations and future expansion. These studies though costly and can take months or even years to complete are essential; it’s better to spend a million dollars to find out a site is unsuitable than to invest a bil- lion and realise the mistake too late.

The issue of scalability is a key consideration

Data centre site selectors aren’t interested in what is available today. It is what is available five years down the line that is of interest to them.Scalability is crucial for data centre success, often requiring substantial planning and funding to lock in resources to ensure future growth.

Typically, data centre operators will want to lock in their future power requirements by paying TNB for example to reserve utility resources that will match their expansion plans over a five-year window. Certainty in securing their future is one key com- ponent in the site selection process. So, if you’re a land bank owner look- ing to secure a data centre client, you may want to consider locking in your reserves for power and water while ensuring your site is suitable for the type of digital activity the data centre is likely to serve.

Simply, Data Centre Developers will have to invest heavily in infrastruc- ture upfront into your land, just to attract a potential client.

It’s no longer just about location, location, location

Unbeknownst to many, the land cost for a data centre development is roughly 5-10% of the total develop- ment figure. In contrast, land costs constitute up to 40-60% of the total investment of a typical industrial or logistics development.

When it comes to developing a data centre, it is a simple case of taking off the real estate hat and approaching the problem from a technology and infrastructure point of view. Power, water, and internet connectivity are factors that have serious weightage in determining if your site is suitable for data centre development. However, it’s not as straightforward as it seems, with other considerations such as the need for renewable energy and busi- ness requirements of the data centre. Thus, the Location location, location mantra has now become…. Location, infrastructure, scalability, business needs, internet connectivity, consumer types, demographics etc.

Johor leads the way

It was no accident that Johor became a success story in the data centre market. It was inevitable.

Singapore could no longer sustain its data centre expansion plans given that 7% of the country’s power supply was used for data centre operations prior to the explosive popularity of ChatGPT.

Credit must go to the federal and state governments for their foresight in planning for this inevitability years in advance. Can Johor’s success be replicated elsewhere in Malaysia? Two examples are Kedah and Melaka which exemplify the strong character- istics of a data centre ecosystem.

To conclude this article, I leave you with a quote from a wise man: “A smart man learns from his mistakes, a wise man learns from others.”

Like other advanced nations, Malaysia must ask itself: Are we pre- pared for the AI boom? The answer is uncertain, but we do possess the advantage of foresight. The US and Europe are now exploring ways to limit the expansion of data centres, encouraging them to source their own green energy and reduce their impact on the grid.

Malaysia must take heed of the warnings emanating from the West and avoid complacency believing that efforts in Johor and Cyberjaya are suf- ficient. Establishing these centres was the easy part; the real challenge lies in maintaining momentum.

Investment, Trade And Industry Minister Tengku Zafrul’s announce- ment of new efficiency standards for data centres in September is a posi- tive step forward in sustaining this progress.