Wood Mackenzie Warns Data Centres Could Account For 40% Of Johor’s Electricity Demand By 2035

Johor is rapidly strengthening its position as Southeast Asia’s leading data centre hub, attracting significant investment from global technology companies and hyperscalers. However, a new report from Wood Mackenzie suggests that while the state has sufficient power generation capacity to support growth in the near term, limitations in grid infrastructure could become a major challenge as demand continues to surge.According to the report, “Powering Johor’s Data Centre Boom: Supply, Demand, and Grid Constraints”, data centres could account for around 40 per cent of Johor’s total electricity consumption by 2035.

This would represent a major shift in the state’s energy landscape and place increasing pressure on its transmission and distribution networks.Johor has emerged as one of Asia’s most attractive destinations for data centre development, benefiting from its strategic location near Singapore, competitive operating costs, and supportive government policies.

These advantages have helped the state attract approximately MYR165 billion (US$42 billion) in cumulative investments from technology firms and cloud service providers.The pace of growth has been particularly striking over the past two years. Data centre electricity demand more than doubled between 2024 and 2025, and Johor now represents an estimated 51 per cent of total data centre maximum demand across Peninsular Malaysia.

Wood Mackenzie estimates that data centre demand in the state has reached approximately 3.8 GW, which is nearly one and a half times Johor’s current overall electricity demand.As investment continues to flow into the sector, data centres are expected to consume an increasingly large share of the state’s electricity. By 2035, they could account for around 40 per cent of end-user power consumption, compared with roughly 24 per cent today.

Wood Mackenzie analyst Alvin Tan noted that concerns about power supply are gradually shifting. While many investors still view generation capacity as the primary challenge, the report suggests the issue is becoming more localised. In many cases, the challenge is no longer whether electricity is available but whether it can be delivered efficiently to the areas where demand is concentrated.

Johor currently has around 6.8 GW of installed power generation capacity, primarily from natural gas and coal-fired power plants. Combined with strong interconnections to the wider Peninsular Malaysia grid, the state currently enjoys a comfortable supply buffer, with electricity demand standing at around 2.6 GW.However, overall system capacity does not fully reflect the pressures developing within specific locations.

Data centre investments are becoming heavily concentrated in key development zones such as Sedenak Tech Park and Nusajaya Tech Park, creating growing demands on local grid infrastructure.As a result, substations and grid connection facilities are emerging as critical bottlenecks. The report identifies shortages of 132 kV main intake substations and a lack of suitable nodal injection points for integrating renewable energy as some of the most immediate infrastructure constraints facing developers.

To address these challenges, Wood Mackenzie suggests several potential solutions. These include the use of higher-voltage 275 kV connections supported by dedicated on-site substations, wider adoption of decentralised solar generation for self-consumption, and the long-term development of renewable energy infrastructure specifically designed to serve major data centre clusters.While grid infrastructure represents the most pressing near-term challenge, the report also highlights concerns about future power supply.

Around 2.1 GW of coal-fired generation capacity in Johor is expected to be retired during the mid-2030s as part of broader efforts to transition to cleaner energy sources.At the same time, reserve margins across Peninsular Malaysia could come under pressure due to rising electricity demand and the expiration of several power purchase agreements associated with gas-fired plants.

Ensuring sufficient replacement capacity will therefore be essential to maintaining long-term energy reliability.In this context, Malaysia’s NewGen26 programme is viewed as a critical initiative. The programme involves an open tender for between 6 GW and 8 GW of new gas-fired generation capacity and is expected to play a major role in supporting future industrial growth and maintaining system stability.

The earlier NewGen25 programme is also expected to help preserve reserve margins by extending the operation of selected gas-fired power assets.Renewable energy is expected to become an increasingly important part of Johor’s future power mix. The planned Southern Johor Renewable Energy Corridor (SJREC), which includes projects in Mersing and Kota Tinggi, could deliver up to 4 GWp of solar generation capacity combined with battery energy storage systems. These developments are expected to help offset the retirement of coal-fired plants and support the growing electricity needs of the state.

Although these projects are likely to ease supply pressures from around 2031 onwards, the report emphasises that continued investment in both generation assets and grid infrastructure will remain necessary to keep pace with projected demand growth.Johor’s attractiveness to investors is also being reinforced by a supportive policy environment.

Incentives under the Johor-Singapore Special Economic Zone (JS-SEZ), streamlined approval processes through Malaysia’s National Data Centre Framework, and Tenaga Nasional Berhad’s Green Lane Pathway have all helped accelerate project development and reduce connection timelines.At the same time, policymakers are introducing new sustainability measures to ensure long-term environmental responsibility.

Malaysia is exploring the introduction of carbon pricing mechanisms, reviewing water tariffs for data centres, and strengthening oversight of project approvals to ensure that infrastructure development keeps pace with demand.The push toward renewable energy procurement is also gaining momentum. By June 2025, around 1.3 GW of agreements had been signed under the Corporate Renewable Energy Supply Scheme (CRESS) across Peninsular Malaysia, with all of these agreements linked to data centre projects located in Johor.

According to Wood Mackenzie, Johor’s ability to attract investment is unlikely to be the main issue in the coming years. Instead, the greater challenge will be ensuring that supporting infrastructure can expand quickly enough to meet demand. As the pipeline of projects continues to grow at one of the fastest rates in Southeast Asia, delays in substation construction, transmission upgrades, or new generation projects could ultimately determine how much further the state’s data centre industry can expand.

The report concludes that while Johor remains exceptionally well positioned to capitalise on the region’s digital infrastructure boom, long-term success will depend on careful coordination between energy planning, grid development, renewable energy deployment, and industrial growth strategies.