Adaptation through Water 2025

In recent years, particularly since the explosive growth of AI, data centres have been springing up everywhere. In Southeast Asia, their growth has been dizzying and for good reason: they bring not only direct investment, but also the potential to expand the local digital economy, foster technology advancement and spur job creation. Malaysia has been a beneficiary of this growth and is well on its way to becoming the data centre hub of Southeast Asia. In the first 10 months of 2024, it attracted $31 billion in data centre investment, three times the investment of the previous year. There are now 101 data centres in the country. Counting projects already in the works, Malaysia is now the world’s fifth-largest data centre market, after China, India, Japan and Australia. However, the energy and water it takes to power and cool these data centres, which operate 24/7, is monumental. Public officials, water experts and business owners worry that fast-rising demand will cause water shortages in a country already prone to drought. Even amid the record growth in investment, Malaysia has already begun reining-in data centre approvals. As of mid-2024, the country had approved less than 18% of the applications for water usage. Malaysia’s Water Services Commission is now considering a number of proposals, including imposing stricter water management policies for the centres and instituting a requirement that data centre operators must secure alternative water sources (such as reclaimed water or desalination) before applying for operating approval. Tighter regulatory requirements need not drive the industry away completely. After Singapore’s three-year moratorium on data centre permitting, centre operators developed innovative ways to be more water and energy efficient. Ironically, even ostensibly clean economic development, such as digital tech, comes at an environmental cost. In pursuing the data centre market, Malaysia and its Southeast Asian neighbours will need to proceed with caution. There is ample evidence that when the water resource of an emerging economy is not properly managed, the country’s development trajectory can easily be undermined. Sources: Fast Company, ISIS Malaysia, BCG, The Straits Times.14Will water constrain data centre growth in Southeast Asia? BOX 2 Weaknesses in water distribution systems are a serious source of waste. This inefficiency stems from two primary causes: ageing infrastructure (such as old pipes) and the lack of modern leak detection and pressure-monitoring tools. Major Southeast Asian countries suffer between four and eight times the water loss in their distribution systems that regional leader Singapore experiences (see Figure 8). Utility non-revenue water (NRW) ratio (%, 2024)1 Philippines ThailandViet NamSingaporeMalaysia Indonesia52227303438 4-8x higher than Singapore benchmarkWater loss through inefficient distribution, major Southeast Asian countries, 2024 FIGURE 8 Note: 1. Non-revenue water (NRW) refers to the portion of water that is produced and put into a distribution system but does not generate revenue for the water utility, mainly due to leakages. NRW ratio is expressed as a percentage of all water produced and distributed by a utility. Source: Global Water Intelligence.15 Major Southeast Asian countries suffer between four and eight times the water loss in their distribution systems that regional leader Singapore experiences.