KUALA LUMPUR: Malaysia will fold a dedicated water tariff for data centres into its National Sustainable Data Centre Framework, which is expected to be released in October 2025, according to a research note from Hong Leong Investment Bank Bhd. The framework is also expected to push operators towards recycled water and district cooling, cutting the industry's reliance on treated drinking water as capacity in the country grows.
The investment bank said the Ministry of Energy Transition and Water Transformation, known as PETRA, has agreed to set the dedicated tariff at RM5.50 per cubic metre. That rate would replace the current industrial water rate applied to data centre operators. A dedicated tariff separates the industry from general industrial users and gives operators a fixed reference price for planning long-lived facilities.
On the power side, the framework may require data centres to raise their renewable share over time, with new facilities potentially required to source at least 30 per cent of their load from renewable energy by 2030. The measures line up with national targets of 40 per cent renewable energy by 2035 and net zero emissions by 2050.
Why water and power sit together in the framework
Data centres consume water mainly for cooling, and potable water is the most expensive and most contested source available. Recycling water on site, or drawing it from treated wastewater, removes that competition with households. District cooling, which produces chilled water at a central plant and pipes it to several buildings, reduces the energy needed per unit of cooling and lowers the load each facility places on the grid.
- Dedicated water tariff set at RM5.50 per cubic metre
- Framework expected in October 2025
- Recycled water and district cooling promoted
- Possible 30 per cent renewable requirement for new data centres by 2030
HLIB said the framework, if implemented effectively, would lower Malaysia's baseline carbon usage effectiveness and narrow the gap with global best practice. Carbon usage effectiveness measures the carbon emitted per unit of IT load, so a lower figure reflects both cleaner power and more efficient cooling. That metric has become one of the ways international customers and lenders compare data centre markets.
Water recycling moves from pilot to pipeline
Large-scale recycled water supply infrastructure in Johor, including a network at Ulu Tiram, has strengthened the commercial case for treated water. A higher potable water tariff makes the economics of connecting to those systems more favourable, because the alternative price rises. HLIB argued the tariff change would push operators to connect to recycled water networks, balancing long-term sustainability with cost competitiveness.
- Ulu Tiram recycled water network in Johor
- Corporate Green Power Programme for large users
- Virtual power purchase agreements for long-term supply
- National targets of 40 per cent renewables by 2035
In a note today, the investment bank said the Ministry of Energy Transition and Water Transformation (PETRA) has agreed to set a specific tariff of RM5.50 per cubic metre (m³), replacing the current industrial rate.
Malaysia already runs the Corporate Green Power Programme, which lets large electricity users lock in long-term renewable supply through virtual power purchase agreements. A virtual agreement is a contract for renewable energy and its associated certificates rather than a physical delivery of power to one site, which makes it usable by operators with several facilities. For data centre operators, such contracts are one of the few ways to secure renewable supply at scale without building generation themselves.
What the framework changes for operators
For operators, the framework turns two inputs that were previously treated as operating costs into planning constraints with published prices. Water moves to a dedicated tariff, and power moves towards a renewable share that rises over time. That pushes design decisions such as cooling technology, on-site water treatment and power contracting earlier into the development process, because they affect whether a project can meet the terms at all.
Building on this, the new framework could require DCs to progressively increase their renewable share, potentially mandating that new facilities source at least 30 per cent of their load from RE by 2030.
Where Malaysia stands
HLIB said the framework, if carried through, would cement Malaysia's position as a competitive green data centre hub in Southeast Asia. The country competes with its neighbours for the same hyperscale tenants and the same pool of infrastructure capital. Environmental terms have become part of that competition, since tenants with their own climate commitments screen markets on water and carbon performance as well as on land and power.
The framework also connects to national energy policy, which aims to lift renewable energy to 40 per cent of the mix by 2035 and to reach net zero emissions by 2050. Data centre demand is one of the fastest-growing sources of new electricity load in the country, so the terms attached to that demand shape how quickly the wider targets can be met.
- Water becomes a priced, dedicated input
- Renewable share becomes a design requirement
- Recycled water and district cooling move to the centre
- Carbon usage effectiveness becomes a measure operators are judged on
For Malaysia's cloud and data centre market, the practical effect is that sustainability terms are becoming part of the cost of entry rather than a marketing line. Operators that connect to recycled water and contract renewable power early will find the published tariffs easier to absorb than those that wait. The framework is expected in October 2025, and how strictly the renewable share is enforced will decide how much of the shift is real.
Source: Bernama
