Rising demand for data centers and its impact on Southeast Asia-5’s energy landscape

ANALYSIS

Data localization policies drive up the demand of data center in Southeast Asia-5 countries

In recent years, Southeast Asia-5 (SEA-5) countries—Indonesia, Malaysia, Philippines, Thailand, and Vietnam—have witnessed a significant transformation in their digital infrastructure. This shift is primarily driven by the implementation of data localization policies, which mandate that data generated within a country must be stored and processed locally. These policies have led to a surge in the demand for local data centers, resulting in a remarkable 32% increase in the number of data centers built across these countries between 2019 and 2023.

The energy conundrum

While the growth of data centers boosts the development of the region’s digital economy, it presents a unique challenge for the energy landscape in SEA-5. Data centers are substantially more energy-intensive than traditional factories, consuming around four to five times more electricity per square meter annually. As the number of local data centers continues to grow to comply with data localization requirements, SEA-5 countries are experiencing a significant increase in energy demand. This situation could pose challenges for businesses looking to expand their manufacturing operations in the region, as it intensifies competition for electricity resources.

The outlook

The global boom in artificial intelligence (AI) is likely to accelerate demand for data centers, particularly in Southeast Asia. Major tech companies like Oracle, Amazon Web Services, Microsoft, and Google are set to invest approximately $16 billion to establish data centers and AI and cloud infrastructure in the SEA-5 region. However, the power grids in several SEA-5 countries are already under pressure, with concerns over grid stability and frequent blackouts in some areas. The increasing energy demand from both data centers and growing manufacturing activity—driven by friendshoring—could exacerbate these challenges unless significant investments in grid infrastructure and capacity upgrades are made.

Additionally, SEA-5 countries are under increasing pressure to reduce their dependence on fossil fuels and transition to renewable energy sources. As energy demand surges with the expansion of data centers and friendshoring activities, there is a risk that these nations may turn to fossil fuels, particularly coal, to meet short-term electricity needs. This could create a conflict between the region's immediate growth objectives and its long-term decarbonization goals.