A fast growing hub faces a water crunch
Johor, the Malaysian state that has become Southeast Asia’s latest magnet for artificial intelligence computing and cloud services, is tightening approvals for new data centres to protect its water supply. State officials say Johor will no longer approve applications for Tier 1 and Tier 2 facilities, the lower tiers that typically rely on more basic infrastructure and can consume very large volumes of water for cooling. Some proposals, officials said, could draw as much as 50 million litres per day, roughly the same as 20 Olympic pools. The move reflects a new priority, safeguarding public utilities as investment scales up at record speed.
The recalibration is happening at a time of significant momentum. By November, Johor had approved 51 data centre projects with a combined investment value of RM182.96 billion. Seventeen are already operating, 11 are under construction, and 23 were approved in 2025. The state wants all data centres to meet stricter sustainability and energy efficiency standards aligned with international benchmarks. The shift follows rising complaints about water supply disruptions that residents say have become more frequent in recent years.
Johor’s rise as a data hub accelerated when Singapore paused new data centre projects between 2019 and 2022 to manage power and water constraints. Developers and customers looked across the border for lower costs and proximity to the island nation’s subsea cables and talent. Industry trackers estimate that planned and operational capacity in Johor has surged from single digit megawatts in 2021 to hundreds of megawatts running today and gigawatts in the pipeline. One market analysis put live capacity at about 487 megawatts with a planned total of around 5.7 gigawatts, an extraordinary jump in just a few years.
What Johor is changing and why
The decision to halt approvals for Tier 1 and Tier 2 facilities signals a shift toward higher tier builds with stronger redundancy and more sophisticated design. Tier ratings are a widely used framework that ranks data centres by their resilience against failure and downtime. While the tier label itself does not dictate water use, older or simpler designs often rely on water intensive cooling towers and do not integrate alternative sources like reclaimed water. Johor officials say some low tier designs could draw up to 50 million litres a day, and they want to avoid placing such a load on systems that also serve homes and businesses.
Policy tools are already reshaping the economics of water. Starting in August, Johor introduced a dedicated water tariff for data centre operators of RM5.33 per cubic metre, which is RM1 to RM1.75 higher than the general non domestic tariff. The state also tightened vetting in 2024, introducing guidelines that encourage renewable water and energy supplies and rejecting applications that fail to demonstrate credible conservation plans. By late 2024, close to 30 percent of proposals had been turned down for not showing responsible use of water and power. Approval rates have improved as applicants adapt to the new expectations.
The combined effect is to push developers toward designs that dramatically lower water consumption. Options range from high efficiency chiller plants and closed loop systems to direct to chip liquid cooling that uses very little water, as well as air cooled systems that eliminate water but require more electricity. Johor’s stance makes clear that new builds must be engineered for both efficiency and reliability, with water use treated as a binding constraint rather than an afterthought.
How much water do data centres use
Water needs vary by climate, system design and the level of heat generated by servers. A rough gauge used by engineers is that a 100 megawatt data centre, the scale of a large hyperscale campus, can require about 1.1 million gallons per day, or roughly 4.16 million litres, when using evaporation based cooling in hot weather. That is comparable to the daily needs of a small city. Older facilities that rely on open loop systems and do not recycle water can draw much more during peak heat.
Cooling 101
Most data centres in warm climates use either evaporative cooling towers, which consume water to reject heat, or mechanical chillers that use more electricity but consume less water. Direct to chip liquid cooling, increasingly used for dense AI servers, moves heat with coolant loops inside servers and can sharply reduce water needs if paired with dry coolers. Air cooled designs can avoid water altogether, but their energy demand can climb in humid conditions. Developers aim for a balance between power and water using two key metrics, Power Usage Effectiveness and Water Usage Effectiveness. A design that cuts water may raise electricity use if not carefully engineered.
Why water stress hits Johor
Rapid industrial growth has increased pressure on a system that must also serve households and agriculture. State planners and researchers point to ageing pipes, recurring supply disruptions and rising climate risks. Johor has, at times, supplemented supply with treated water from Singapore, which underscores the challenge of building out fast while keeping taps flowing. Malaysia’s National Water Services Commission has warned that unchecked use of potable water by data centres is unsustainable and could threaten long term water security if not addressed with clear rules and investment in infrastructure.
Reclaimed water and new projects point to a different build model
Operators are responding with projects that rely on recycled sources rather than drawing on potable water. One of the most ambitious examples is Bridge Data Centres in Johor, which has built a water reclamation plant in Ulu Tiram to serve an upcoming 400 megawatt campus. The plant was completed in about ten months and currently processes five million litres of water per day with plans to expand to 20 million litres. The system pipes treated sewage effluent from a nearby facility, removes odour and impurities, and then runs it through multiple stages of reverse osmosis, producing high quality process water suitable for cooling coils and heat exchangers.
Several operators have lined up alternative supplies. Agreements signed with Indah Water Konsortium and Johor Special Water commit up to 12 million litres per day of treated effluent to Bridge and a separate allocation to Computility Technology. DayOne is set to process raw river water supplied by Johor Special Water for its Kempas site. AirTrunk plans to use recycled water at its two Johor Bahru facilities. The pivot is also geographic. Sedenak Tech Park, the earliest cluster, is facing water and power bottlenecks until new capacity arrives, prompting some firms to develop in areas like Ulu Tiram where resources can be secured sooner. Analysts caution that moving to new districts without broader planning risks shifting the burden rather than easing it.
Charles Santiago, former chairman of Malaysia’s National Water Services Commission, has urged companies to expand the use of reclaimed sources and explore additional options like rainwater capture and desalination where feasible. He welcomed signs that industry and government are aligned on water conservation.
Any effort that uses alternative water must be welcomed. It signals that there is strong public and private commitment.
Academic experts also warn that regional clusters can strain whichever local network supplies them, which is why state wide planning, leakage reduction and extra treatment capacity are critical. Reclamation reduces pressure on potable water, but it works best as part of a wider program that expands raw water availability and upgrades pipes to cut losses.
Power capacity and AI demand are part of the squeeze
Water is only one side of the equation. Electricity demand from digital services and AI training is rising quickly. Johor’s current operational capacity is estimated in the hundreds of megawatts, with planned capacity many times larger. National planners expect data centres to take a larger share of Malaysia’s generation over the next decade. To meet demand, officials have outlined new gas fired capacity of 6 to 8 gigawatts, even as the country targets net zero emissions by 2050. That creates a planning challenge, since saving water by switching to air cooling can raise energy use unless designs are carefully optimized.
The experience of Singapore shows how quickly policy can reshape the map. A three year pause on new facilities slowed growth there, then the government rolled out a green data centre framework to guide limited new capacity with strict efficiency targets. Johor benefited from the spillover, given close proximity, low latency connections and growing cross border coordination. Now, with water and grid capacity under pressure, Johor is choosing to filter projects based on sustainability outcomes at the front end rather than relying on fixes after construction.
The message to operators is simple. Designs that minimize both water and electricity have a clearer path to approval. Projects that rely heavily on potable water or do not present credible water reuse plans will face higher costs and longer scrutiny. The combination of a higher tariff, tighter vetting and supportive infrastructure for reclaimed water is reshaping the investment case.
Geopolitics meets resource limits
Malaysia’s policy moves also intersect with global tech trade. In July, the government began requiring permits for all exports, trans shipments and transits of high performance chips made in the United States. That step was designed to ensure compliance with export controls while Malaysia negotiates closer economic ties with key partners. Chinese and multinational cloud operators have invested heavily in Johor, and some have reorganized overseas units to navigate evolving rules. As scrutiny grows, projects will need to demonstrate compliance as well as sustainability, all while making their resource footprint acceptable to local communities.
For Johor, the binding constraints on the ground are water and electricity. The state’s latest measures are a signal that data centre growth must proceed in lockstep with infrastructure investment and with clear commitments to recycled water and efficient cooling. Companies that can match the state’s conservation goals are likely to face fewer delays and can help sustain community support.
What operators can do now
Developers and operators weighing Johor or other Malaysian locations are adjusting build plans to align with the new rules and public expectations. The most effective strategies are already visible in projects under way across the state.
- Source non potable water. Secure reclaimed wastewater from municipal systems, or treat raw river water for industrial use, to protect potable supply.
- Build onsite treatment and storage. Reverse osmosis, ultrafiltration and odor removal systems can create a stable process water loop with quality control.
- Target aggressive Water Usage Effectiveness and Power Usage Effectiveness levels at design stage, not after commissioning.
- Adopt server level liquid cooling for AI clusters and pair with dry coolers to reduce evaporative water loss.
- Invest in heat recovery and reuse where feasible to cut chiller loads, for example preheating water for nearby facilities.
- Choose sites with confirmed power and non potable water allocations, and sequence expansion around grid and pipeline upgrades.
- Report water draw and recycling volumes transparently and engage with local communities early to address concerns.
Policy makers, for their part, are expanding treatment capacity and pipe replacement programs, while aligning incentives so that alternative water is the default for industrial cooling. Clear reporting standards for data centre water and power use will help the market reward the most efficient designs and protect household supply during dry spells.
What to Know
- Johor has stopped approvals for Tier 1 and Tier 2 data centres that can draw very large volumes of water for cooling.
- A new data centre water tariff of RM5.33 per cubic metre is in force, above standard non domestic rates.
- As of November, the state had 51 approved projects worth RM182.96 billion, with 17 operating and 11 under construction.
- Developers are pivoting to reclaimed sources, with agreements to supply up to 12 million litres per day of treated effluent to major sites.
- One operator has built a reclamation plant that can scale from 5 million to 20 million litres per day to serve a 400 megawatt campus.
- Live capacity in Johor is in the hundreds of megawatts, with gigawatts planned, heightening pressure on power and water systems.
- Malaysia now requires permits for movements of high performance US made chips, adding compliance checks alongside sustainability reviews.
- Analysts and regulators warn that water stress will persist unless reclaimed water, efficient cooling and infrastructure upgrades are widely adopted.
