Energy sector set for fresh investment wave

By the Editorial Team · Tuesday, September 15, 2026

Malaysia plans to add up to 9 gigawatts of gas-fired power capacity by 2032 to address rising electricity demand driven by the rapid expansion of data centres and the phase-out of ageing coal plants. This investment is critical to maintaining grid stability and preventing power shortages during the energy transition, although challenges such as equipment delays and financing may extend reliance on existing coal assets.

Malaysia is poised for a significant wave of investment in its energy sector as the country seeks to expand gas-fired power generation to meet rising electricity demand, particularly driven by the growth of data centres (DCs), alongside the planned retirement of ageing coal-fired power plants.

Industry research indicates a planned addition of up to 9 gigawatts (GW) of gas-fired generation capacity by 2032. This development is seen as crucial to preventing potential shortages in electricity reserve margins, especially with around 7.1 GW of coal capacity set to expire between 2029 and 2033. Additional coal capacity of approximately 5 GW is expected to reach the end of its power purchase agreements (PPAs) between 2040 and 2044.

Data from Tenaga Nasional Bhd (TNB) shows that electricity consumption by data centres has surged significantly, rising 108% year-on-year to 1.26 GW as of June 2026. Currently, about 5.65 GW of DC capacity is connected to the national grid, with another 2.2 GW under construction and 0.5 GW secured under newly signed electricity supply agreements, marking a prospective total of 8.4 GW. Furthermore, TNB has identified an additional 5 GW of DC projects in the pipeline, potentially increasing connected DC capacity to 13 GW in the medium term. The state of Johor accounts for a substantial share of secured DC capacity, making up 67% of the 8.4 GW total.

Looking ahead, the Energy Transition and Water Transformation Ministry has projected that DC demand could reach 21 GW by 2040. Based on the current pace of DC capacity additions—averaging 0.6 GW per quarter—there is a possibility this target may be exceeded, although factors such as inter-regional competition and shifting demand dynamics may influence outcomes.

The growing reliance on gas-fired generation is expected to drive demand for expanded gas infrastructure, including additional regasification terminals and pipeline networks, to support Malaysia’s increasing electricity needs. Alongside this, grid stability considerations are becoming more critical, with indications that for every 1 GW of solar capacity added, 0.5 GW of battery energy storage system capacity will be necessary once solar penetration hits 6 GW.

Research analysts have noted that Malaysia is entering a transitional "power catch-up period" due to generation capacity struggling to keep pace with rapid DC growth. Until new gas-fired plants are commissioned, the energy system is expected to rely more heavily on its existing generation assets, extensions of current PPAs, renewable energy additions, storage solutions, and other flexible resources. While 2029 is identified as a key inflection point for supply improvements, delays caused by global shortages in turbine procurement, financing difficulties, construction, and grid connections could extend this period until 2031.

In light of these challenges, the option to extend PPAs for coal-fired plants remains under consideration despite the government's decarbonisation goals. The Energy Commission is conducting a comprehensive study to develop a transition strategy for coal-fired power generation. This study explores a range of options, including early retirement via competitive bidding, retirement aligned with PPA expiries, mothballing, repurposing, retrofitting units for flexible operations to enhance grid security, and extending existing PPAs. The final coal-fired power plant PPA is expected to expire in May 2044.

Overall, Malaysia’s energy sector appears set for significant shifts over the coming decade, balancing the need to support rapid growth in digital infrastructure with the challenges of transitioning from coal to cleaner energy sources.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.