Data centre expansion could unlock RM36bil renewable energy opportunity

KUALA LUMPUR: Malaysia's data centre expansion could create up to RM36 billion worth of opportunities for renewable energy (RE) players if they are required to source at least 30 per cent of their electricity from green energy.

Hong Leong Investment Bank Bhd (HLIB) said its industry channel checks suggested that newly approved data centre projects could be subject to a minimum 30 per cent RE requirement.

This comes as the Data Centre Task Force recently approved an additional five gigawatts (GW) of data centre capacity, equivalent to about 60 per cent of the existing 8.3GW pipeline as at June.

"Our industry channel checks suggest that newly approved data centre projects could be subject to a minimum 30 per cent RE requirement," HLIB analyst David Ng said in a note.

"This could turn the additional 5GW pipeline into a sizeable total addressable market for RE and provide a meaningful structural catalyst for the Corporate Renewable Energy Supply Scheme (Cress) adoption."

HLIB estimates the potential market at between RM9 billion and RM36 billion, depending on how the 30 per cent requirement is calculated.

Under a capacity-matching scenario, it assumes 30 per cent of the newly approved 5GW data centre capacity would be matched with solar photovoltaic (PV) capacity on a one-to-one basis.

After adjusting for the difference between direct current and alternating current capacity, this would require about 2.25GW of solar capacity.

HLIB estimates a battery energy storage system with 1,125 megawatts (MW) of power capacity and 4.5 gigawatt-hours (GWh) of storage capacity would also be required.

Based on an assumed solar-plus-storage project cost of RM4 million per MW, the total addressable market would be about RM9 billion.

The potential market could be significantly larger if the requirement is based on actual energy consumption.

HLIB said data centres operate around the clock, while solar generation is limited to daylight hours.

For a 100MW data centre operating at full capacity, annual electricity consumption would be about 876GWh.

The research firm estimates that meeting 30 per cent of that consumption would require about 180MW of solar capacity, together with a 90MW/360MWh battery energy storage system.

Applied across the additional 5GW data centre pipeline, this would translate into about 9GW of solar capacity and 4.5GW/18GWh of battery storage.

That would expand the potential market to about RM36 billion.

"The significant variance versus the capacity-matching scenario reflects the intermittent nature of solar generation, where solar PV generally receives four hours of peak sunlight per day," it said.

The firm said legacy data centre projects with signed electricity supply agreements may be exempt from the potential requirement.

Nevertheless, it expects demand for green electricity to remain strong as global data centre operators continue to pursue environmental, social and governance and RE targets.

Cress is a third-party access mechanism that enables RE developers to supply green electricity to green consumers using the existing electricity grid.

The programme provides corporate consumers with an additional option to procure green electricity directly from RE developers.

Last Friday, the Energy Transition and Water Transformation Ministry announced a new package offering a 14 sen per kilowatt-hour System Access Charge for firm green electricity supply to accelerate RE projects and provide greater cost certainty to industry.

It said the Cress Acceleration Package would also require RE developers and green consumers to enter into 10-year contracts.

"The approach aims to provide long-term cost certainty to RE developers, green consumers and financial institutions and subsequently improve the bankability of projects," it said in a statement.

Projects seeking to benefit from the package must achieve commercial operation by Dec 31, 2028.