Malaysia, Indonesia and India emerge as leading growth markets in data center – BMI

BMI Country Risk and Industry Research (BMI)‘s technology team forecasts an average of 9.7 percent year on year data center capacity growth across Asia Pacific (APAC) between 2025 and 2028, with Malaysia, Indonesia and India at the forefront of this growth. The research house said in a note on last Wednesday that Asia’s data-center build-out will materially lift power demand through 2028, with Malaysia, Indonesia and India emerging as leading growth markets in the region. “Asia’s data center market is experiencing rapid growth, driven by surging digitalization and cloud service demand, “This stems from the data center crunch in Singapore, where tight supply and rising lease prices have prompted data centers to expand regionally, with Malaysia’s Johor and Indonesia’s Batam emerging as preferred alternatives to service Singapore-based demand,” it said. Additionally, persistently rising electricity costs in the United States, which has more than doubled in some data center hubs, is eroding the US’ long-term competitiveness in favor of Asia as an attractive investment destination. BMI noted the current US administration’s policy direction to meet data center demand with expensive natural gas-fired generation, coupled with reduced support for clean energy, threatens to significantly increase both the cost and timeline for bringing new power capacity online. Solar power, which offers the shortest lead time for deployment, faces policy headwinds, while the gas sector confronts long order backlogs for equipment and infrastructure. In comparison, Asia offers shorter lead times for new renewables, particularly solar, and relatively competitive energy costs, reinforcing its appeal for global data center operators seeking reliable, scalable power. “We highlight upside opportunities for neighboring markets such as Thailand and the Philippines, amid saturation and infrastructure bottlenecks in primary markets, “While Malaysia has been leading the region in data center expansion, the pace of expansion is placing significant pressure on its land and power resources, including the grid. We expect a mismatch between data center power demand and power generation growth,” said BMI. In 2024, data centers accounted for about 20 percent of Malaysia’s electricity output growth, however, BMI expects this to rise to 70 percent to 90 percent in 2025–2026 as a wave of new data centers come online. “Meeting this new demand with clean power becomes even more challenging, but increasingly important as renewable-matching commitments become central to data center operators’ business models,” said BMI. In response, operators are increasingly looking to neighboring countries such as Thailand and the Philippines. It is noted that Thailand’s Eastern Economic Corridor is attracting record levels of investment, with a combined total of $2.96 billion from GDS, DAMAC-Proen and Google in the fourth quarter of 2024, and a further $4.76 billion from GDS and Bytedance in the first quarter of 2025. The Philippines stands out for its favorable demographics, high data consumption rates and strategic location as a connectivity hub for Southeast Asia and the Pacific. In addition, the recent hike in electricity tariffs for data centers in Malaysia could be an impetus to look towards other markets in the region for expansion. BMI also highlighted that grid infrastructure is the weakest link in the region, with transmission expansion lagging far behind both renewables growth and surging data center demand. Despite rapid data center and renewables growth across Asia, it noted grid infrastructure is failing to keep pace, threatening the reliability and scalability of new projects. It is noted that in most markets, grid expansion takes five to ten years or more, significantly longer than solar farm development, which can be completed in under a year. This creates a bottleneck, as the grid must be able to accommodate both new renewable generation and the intense, concentrated demand from data centers. For example, in Indonesia, grid constraints pose a major challenge to integrating new supply and meeting data center requirements, as highlighted by slow transmission project execution relative to the speed of capacity additions. “In our view, the India market is the best positioned in the region to capitalize on data centres’ demand for clean power, owing to its supportive policy environment for renewable energy growth and power procurement, “Over the next five years, we estimate that less than 10 percent of India’s renewable output growth will be required to meet additional data center power requirements, leaving substantial headroom for other sectors,” said BMI. According to the research house, this is in stark contrast to other hotspots Malaysia and Indonesia, where data center demand is about four times higher than renewables output growth, limiting the availability of clean and stable power. It also said India’s supportive policy environment allows data centers to secure clean power via many procurement options. For example, it sees a growing trend of data centers and corporates opting for captive renewable projects, where they hold at least 26 percent equity and consume a minimum of 51 percent of the power generated annually. Such projects benefit from exemptions on cross-subsidy and certain additional surcharges, offering a more cost-effective and reliable supply of clean power. “In addition, while we previously highlighted grid constraints in India as a key roadblock, the government has recently implemented more stringent grid connection rules,” said BMI. In September 2025, the government revoked grid access for about 17GW of delayed clean energy projects to free transmission capacity for completed renewable projects. “Though we still expect project delays and inefficiencies due to the size of the India market, overall, we are bullish due to concrete progress in regulations and reforms in India’s power sector,” said BMI. Data center operators In Malaysia to seek competitive edge through sustainability: BMI