Southeast Asia's datacentre boom slams into power and water limits

Thailand slammed the brakes in September 2026, pausing construction on 49 datacentre projects and freezing approval decisions on 117 more, citing a lack of detail needed for regulation and monitoring. Indonesia is reading from the same script: the governor of West Java halted a datacentre build over missing permits and an incomplete environmental assessment. After a head-spinning run, south-east Asia's datacentre stampede has hit a wall.

The region became an unlikely engine of Asia-Pacific growth as AI demand exploded. A 2026 report from real estate firm Cushman and Wakefield puts south-east Asia's share of under-construction datacentre capacity in the region at roughly 50%, the largest of any area in Asia Pacific, with Malaysia and Thailand carrying much of it. Singapore ran the show through the 2010s, hosting Alibaba and Facebook facilities, until a 2019-2022 moratorium on new builds — the government called datacentres intensive users of water and electricity. Approvals since then have been selective, with just 95MW of operational capacity added between 2023 and 2026.

Malaysia cleaned up. Operational capacity in southern Johor has grown more than tenfold since 2023, reaching 1,110MW in 2026, with another 3,088MW under construction or planned. Johor is now south-east Asia's biggest datacentre hub and has pulled in $40bn of investment as of 2026, according to the state's Menteri Besar, Onn Hafiz Ghazi. Microsoft pledged $2.2bn for cloud and AI infrastructure across Kuala Lumpur and Johor in 2024, while Australia's AirTrunk said it will spend $3bn doubling its Johor sites from two to four. Elsewhere, greater Jakarta carries a 1,699MW pipeline and Microsoft is building five datacentres in Indonesia as part of a $1.7bn push, while Bangkok's pipeline sits at 2,084MW and Manila and Ho Chi Minh City ramp up.

All that compute eats power. Energy consultancy Wood Mackenzie estimates Johor's datacentres already soak up 24% of the state's total electricity consumption, a figure that could climb to 40% by 2035. "The rapid growth of datacentre developments in Johor has the potential to create localized grid connection bottlenecks and increase the need for transmission network upgrades as well as new power supply capacity," Wood Mackenzie research analyst Alvin Tan said. Thailand's energy minister, Akanat Promphan, has said the industry needs huge volumes of power from expensive imported gas and pushed for a new electricity user category with higher tariffs to match.

Water is the other flashpoint. Drought-prone Johor's operating datacentres are estimated to need about 675m cubic metres of water per day, and a Tenggara Strategics report found many Indonesian facilities are water-cooled and sit in hot, humid lowlands, driving consumption above what cooler climates allow. In Thailand, residents near the Eastern Economic Corridor worry about depleted reservoirs. "The Khlong Luang Reservoir in Chonburi is a primary flashpoint," said Somnuck Jongmeewasin, research director at advocacy group EEC Watch, adding that authorities are piping its water to industrial estates despite the reservoir being shallow and strained.

Communities are pushing back. In February, Johor saw its first public protest against datacentre construction, with demonstrators picketing a project by China's ZData Technologies over dust pollution near homes and risks to water supply. Jie-Sheng Tan-Soo, an assistant professor at Singapore's Lee Kuan Yew School of Public Policy, noted the industry generates fewer long-term jobs than other sectors using comparable land, power and water — so communities may reasonably ask whether the benefits are proportionate. Operators insist they are cleaning up their act: Bridge datacentres built a water reclamation plant and pipe network in Johor for its upcoming site, and AirTrunk announced an April partnership with sewage treatment operator Johor Special Water to recycle wastewater. Microsoft says it is hunting for south-east Asian clean energy projects to fuel its facilities, but its own published Power Usage Effectiveness data shows its Asia-Pacific sites are the least energy efficient in its global fleet. Regulators have noticed: Malaysia set up a datacentre taskforce weighing energy and water security, Johor stopped approving Tier 1 and Tier 2 facilities that can burn up to 50m litres of water a day — equal to the daily drinking water needs of 25 million people — and Thailand rolled out an approval framework factoring in energy, water and power guarantees.