Johor's Data Center Boom Runs Into Grid Delays as Power Connections Decide Which Projects Proceed

A 30 Percent Rejection Rate Exposes the Power Gap

Johor rejected up to 30 percent of new data center applications in 2024, according to Area Market Intelligence, as electricity connection delays began deciding which investments could proceed. The Malaysian state's problem has shifted from how much electricity can be generated to whether that electricity can reach a new facility when its operators need it.

The scale of the mismatch is striking. Johor has approximately 580 megawatts of operational data center capacity, while its planned capacity, including projects at an early stage, reaches 5.8 gigawatts, according to Knight Frank. Since one gigawatt equals 1,000 megawatts, the planned total is nearly 10 times the capacity already operating.

Developers face utility schedules that do not match their construction plans, uncertainty over who must provide substation infrastructure, and planning problems discovered late in development. Investment money and available land are therefore no longer enough to make a project viable. A dependable date for connecting to the electricity network has become a central requirement.

Johor's expansion also faces pressure from water demand, protests by residents and tighter scrutiny of advanced artificial intelligence chips. Those issues overlap: a facility needs electricity, cooling and equipment before it can serve customers, so a delay affecting any one of them can hold up the entire investment.

As of the second quarter of 2025, Johor had approved 42 data center projects worth 164.45 billion ringgit, or $39.08 billion. The state contributed 78.6 percent of Malaysia's operational IT capacity. Those figures show why delays in Johor matter to the country's digital infrastructure ambitions, as well as to individual developers.

Why Singapore's Limits Sent Investment Across the Strait

Singapore's restrictions helped turn Johor into a magnet for data center investment. The city-state, historically the region's main digital hub, imposed a moratorium on new data center construction for three years until January 2022 because of severe electricity and water constraints.

Singapore subsequently launched its Green Data Centre Roadmap and approved 300 megawatts of additional capacity. Growth nevertheless remained limited by strict sustainability requirements and a shortage of physical space.

Johor offered cheaper land, more resources compared with Singapore's island constraints, and access to the nearby financial hub's fiber connectivity. Its location just across the Strait of Johor made it an attractive place to expand while staying close to Singapore's digital networks.

The resulting investment surge placed growing demands on local infrastructure. Kenanga Investment Bank Berhad projects that electricity consumption by Malaysia's data centers will equate to 20 percent of the country's total energy generating capacity by 2035. Malaysia plans to add 6 to 8 gigawatts of generation from gas, but transmission and distribution upgrades needed to deliver that electricity can take years.

Regional Announcements Race Ahead of Construction

Asia-Pacific recorded nearly 13 gigawatts of new data center project announcements in the first half of 2025, a rise of 160 percent over the previous year, according to Knight Frank research. Those projects represent more than $180 billion in required investment, reinforcing the region's position as the world's fastest growing hub for digital infrastructure.

Artificial intelligence and cloud computing are driving demand for computing capacity. Global demand for data center capacity increased 30 percent in 2024, yet construction has struggled to match the pace of announcements because of electricity connection and permitting delays.

DC Byte says committed supply has grown more than sixfold since 2019. Committed supply means projects that have secured land, electricity and planning permissions. Even with those commitments, capacity under construction is no longer increasing at the same rate as announcements.

Colby Cox, managing director for the Americas at DC Byte, described the gap between customer demand and the ability to complete facilities, particularly in the United States:

The market is not cooling. It is overcommitted and underdelivered. In the US especially, we are seeing a real tension between intent and execution. Projects are being leased before construction starts, but grid delays and permitting hold-ups are pushing delivery further out. This is not a demand problem. It is a development bottleneck.

Cox's assessment places the competitive advantage with operators that can bring capacity into service. Johor faces the same practical test: announcing a campus or finding customers does little to resolve an electricity connection that will arrive after the building is ready.

Why a Finished Building Can Still Wait Years for Power

A power plant produces electricity. Transmission lines carry it over long distances, while substations and transformers prepare it for delivery to local users. Johor's bottleneck lies in that delivery chain, where a particular site may lack the infrastructure needed for a large new customer even when electricity generation is available elsewhere.

Boston Consulting Group's analysis puts the development time for a typical greenfield data center at two to three years. Greenfield means construction on a new site. The associated electricity interconnection studies and infrastructure upgrades typically take four to eight years, leaving a substantial gap between the building schedule and the power schedule.

Area Market Intelligence identifies three failure points in Johor: utility timelines that do not align with developers' construction schedules, unclear responsibility for investment in substations, and planning constraints that appear only after projects have moved through initial approval stages.

Developers who use regional electricity generation figures to assess a site can later discover that nearby transmission infrastructure cannot support their required load. The industry's term for the waiting period before usable electricity arrives is time to power. In Johor, that waiting period increasingly determines whether a project can advance.

Data centers also need a highly stable electricity supply, specific voltage and frequency conditions, and redundant connections. Redundancy provides another supply route if one fails, helping keep computer systems running. Meeting these requirements can involve more work than simply increasing the number of megawatts available.

Tenaga Nasional Berhad, the national utility, must coordinate with local regulators and private developers on these upgrades. Projects can stall when the parties lack a clear framework for deciding who pays for new equipment and who is responsible for building it.

Water Demand Brings Residents Into the Debate

A single data center with a capacity of 100 megawatts can use approximately 4.2 million liters of water a day for cooling, equivalent to the supply needs of thousands of residents. Johor already relies on neighboring Singapore for a significant portion of its treated water and has experienced several supply disruptions.

Residents protested outside a data center construction site, alleging dust pollution and expressing concern about possible water shortages. The demonstration was described as the first significant public protest against the industry in Malaysia, showing that the expansion is encountering resistance beyond the electricity connection process.

Associate Professor Dr Muhammad Najib Razali, a property economics expert at Universiti Teknologi Malaysia, said regulators were signaling that water and energy allocations must protect residential users and essential industries. He described utility access as increasingly subject to conditions:

Treated water and grid power are no longer assumed to be available on demand. They are becoming conditional inputs, subject to caps, efficiency requirements and policy scrutiny.

For residents, those conditions concern the reliability of everyday services. For operators, they affect whether a site can obtain the resources necessary to run continuously. Water and electricity allocation therefore connect local public concerns directly to investment decisions.

Utility Readiness Is Changing the Value of Land

Dr Najib said land with demonstrable utility readiness commands a premium and faces fewer delays. Access to alternative water supplies, reclaimed water systems or improved energy efficiency can make a site more attractive than another property in an otherwise desirable location.

Sites relying entirely on municipal water or standard electricity connections face greater uncertainty. Water and energy have moved from supporting infrastructure considerations to primary factors in land value and investment risk.

Johor is reportedly constructing three new reservoirs and water treatment plants in response to pressure on supplies. The government has also imposed higher water tariffs on data centers and encouraged operators to use recycled wastewater.

Some newer facilities are adopting designs that use air for cooling and eliminate water use entirely. These systems require additional energy and are less efficient in Johor's tropical climate. Reducing demand on water supplies can therefore increase the challenge of securing sufficient electricity.

Developers must consider both resources together. A site with a shorter electricity connection timetable may still face water restrictions, while a facility designed to avoid water consumption may need more power for its cooling system.

AI Chip Controls Add a Trade Complication

Chinese companies including Tencent, Huawei and Alibaba have established significant presences in Johor, attracted by the same location and infrastructure advantages drawing American companies. Malaysia's decision to slow data center expansion also affects Chinese efforts to obtain access to advanced artificial intelligence chips covered by United States export controls.

Washington has raised concerns that data centers outside China could buy restricted Nvidia chips to train AI models supporting Chinese military applications. The issue adds scrutiny to projects that already face electricity and water constraints.

In July 2025, Malaysia announced permit requirements for all exports, trans-shipments and transits of high performance chips made in the United States. Trans-shipment involves moving goods through an intermediate location before they reach their destination; transit involves goods passing through a country.

Regulatory loopholes technically allow Chinese data centers to import chips for use within Malaysia. Scrutiny of those projects is nevertheless increasing as Kuala Lumpur seeks to finalize trade agreements with Washington, requiring Malaysian policymakers to balance Chinese investment against American strategic concerns.

Lee Ting Han, vice chair of Johor's data center development coordination, suggested that restructuring by Chinese companies likely seeks to diversify their client bases in anticipation of changing trade tensions. He cited DayOne's separation from its parent company, GDS Holdings. Electricity delays and uncertainty over chip rules together complicate decisions about where, when and for whom new capacity will be built.

Operators Seek Faster Routes to Electricity

Microsoft has used gas generators at its Queretaro facility in Mexico because of similar electricity grid delays. The example shows how even large technology companies can turn to temporary fossil fuel generation to keep facilities operating while they wait for conventional connections.

Vantage Data Centers has partnered with VoltaGrid to deploy more than one gigawatt of natural gas microgrid capacity across North America. A microgrid is a local electricity system serving a site or group of sites. The proposed capacity is designed for installation within months rather than years.

Google has taken a different approach in Malaysia, signing a power purchase agreement with TotalEnergies lasting 21 years. The agreement secures one terawatt-hour of certified renewable electricity from the Citra Energies solar plant under Malaysia's Corporate Green Power Programme.

The Google arrangement shows how large cloud operators are seeking dedicated generation over long periods to support their sustainability targets and address some constraints associated with conventional utility supply. The amount of renewable electricity contracted and the timetable for supplying a particular campus remain separate practical parts of planning.

Solar arrays, battery storage and generation at a facility are also attracting attention as temporary solutions. Equipment located behind the meter supplies electricity on the customer's side of the utility meter, rather than relying entirely on power delivered through the wider network.

Independent systems face demanding reliability requirements, and expanding them to serve facilities at gigawatt scale creates major technical and financial challenges. Boston Consulting Group expects data centers connected to the grid to remain the favored option. It points to changes in connection procedures and contracts that reduce utility investment risks as ways to help projects proceed. Developers are also considering secondary markets where grid capacity is available.

The Dates Behind Johor's Infrastructure Squeeze

Johor's present constraints developed over several years as regional demand expanded, Singapore limited new construction and Malaysia sought to manage the resources and equipment needed for the next wave of facilities.

• Since 2019: Committed data center supply has grown more than sixfold, according to DC Byte.
• January 2022: Singapore's moratorium on new data center construction ended after three years.
• 2024: Johor rejected up to 30 percent of new applications, while global demand for data center capacity increased 30 percent.
• First half of 2025: Asia-Pacific recorded nearly 13 gigawatts of project announcements, up 160 percent over the previous year.
• Second quarter of 2025: Johor had approved 42 projects worth 164.45 billion ringgit, or $39.08 billion.
• July 2025: Malaysia announced permit requirements for exports, trans-shipments and transits of high performance chips made in the United States.
• October 2025: Malaysia had scheduled the launch of a Sustainable Data Centre Framework.
• 2035: Kenanga projects data center electricity consumption equivalent to 20 percent of Malaysia's total energy generating capacity.

The Sustainable Data Centre Framework was intended to provide clearer resource use guidelines and potentially simplify approvals. It could also address uncertainty over responsibility for substations. As of February 13, 2026, no confirmation of its launch or specific provisions is given, leaving its effect on those delays unclear.

Johor's immediate challenge is to bring construction plans, utility investments and resource allocations onto compatible schedules. New generating capacity can support growth, but projects also need substations, transmission connections, dependable cooling arrangements and clarity over equipment rules before their planned computing capacity can become operational.

The Bottom Line

• Johor rejected up to 30 percent of new data center applications in 2024 as grid delivery delays constrained development.
• Planned capacity of 5.8 gigawatts is nearly 10 times the approximately 580 megawatts already operating.
• By the second quarter of 2025, the state had approved 42 projects worth 164.45 billion ringgit and accounted for 78.6 percent of Malaysia's operational IT capacity.
• A typical new data center takes two to three years to develop, while associated connection studies and infrastructure upgrades can take four to eight years.
• Water demand, resident protests and tighter resource allocations are affecting site selection and investment risk.
• Malaysia's July 2025 chip permit requirements added trade scrutiny to a sector already facing infrastructure delays.
• Operators are pursuing gas generation, renewable electricity contracts, solar power, batteries and markets with available grid capacity.