Key Takeaways

• E07.02 — Understanding Electricity Tariffs in Malaysia explains how electricity tariffs are structured, determined and applied to different customer categories under Malaysia’s current Incentive-Based Regulation (IBR) framework.
• Malaysia’s electricity tariff is not simply a single sen/kWh charge. The current framework combines the Base Tariff with the Automatic Fuel Adjustment (AFA), while individual tariff schedules can incorporate energy, maximum-demand and other applicable charges.
• Voltage level matters: the tariff structure differentiates customers according to their electricity-supply characteristics, including voltage level, rather than treating every consumer as physically identical.
• For large electricity users such as data centres, maximum demand is particularly important because the customer requires the electricity system to maintain sufficient capacity to meet its peak requirement, in addition to paying for the energy actually consumed.
• The Base Tariff incorporates regulated costs including transmission and distribution CAPEX and OPEX, as well as a regulated return on the asset base; AFA separately adjusts generation-related costs as actual costs change.
• IBR is not a simple mechanism for dividing the total cost of the electricity system equally among consumers. The regulated revenue requirement is translated into different tariff structures and charges for different customer categories.
• The article distinguishes connection charges, electricity tariffs, IBR and network cost recovery because these mechanisms perform different functions and should not be treated as interchangeable.
• The central question for the next stage of MDCO research is therefore not simply what tariff a data centre pays, but how the payments made by a large customer relate to the costs of the wider electricity system that serves it.

From Getting Connected to Paying for Electricity

In →E07.01 — Applying for Electricity Supply to a Data Centre in Malaysia, we followed the process through which a major data centre moves from an electricity-demand requirement to an approved and energised connection.

We examined how the proposed load is assessed, how TNB determines an appropriate supply arrangement, how the connection may require new or upgraded infrastructure, and how connection charges and other payments can arise before the supply is energised.

But once the connection has been established, another financial relationship begins.

The data centre starts consuming electricity.

This raises a different question:

How is that electricity actually priced?

The answer is not simply a matter of multiplying the number of kilowatt-hours consumed by one universal Malaysian electricity rate.

Malaysia operates a regulated electricity tariff framework in which different customer characteristics, supply arrangements and components of electricity-system cost are reflected in the tariff structure.

Under the current framework, electricity tariffs in Peninsular Malaysia are determined under Incentive-Based Regulation (IBR). The current Regulatory Period 4 (RP4) took effect on 1 July 2025 and runs until December 2027.

The tariff framework also includes the Automatic Fuel Adjustment (AFA) mechanism, which allows generation-related charges to be adjusted monthly when relevant costs change.

This means that the price ultimately paid by a customer reflects several layers of the electricity system rather than simply the cost of generating the electricity consumed at that moment.

This distinction is particularly important for large electricity users such as data centres.

A data centre can consume very large quantities of electricity, connect directly to high-voltage infrastructure and operate continuously. Understanding its electricity bill therefore requires an understanding of how Malaysia’s electricity tariff system is structured.

This article takes the next step from E07.01.

→E07 — The Electricity System Supplying Malaysia’s Data Centres explained the physical electricity system.

→E07.01 — Applying for Electricity Supply to a Data Centre in Malaysia explained how a major customer connects to that system.

This article examines what happens after the connection is energised — how the electricity consumed by that customer is priced.

MDCO Insight: Connecting to the electricity system is one financial relationship; paying for electricity consumption is another.

Who Sets Electricity Tariffs in Malaysia?

Before examining the components of an electricity tariff, it is important to understand who determines the framework within which those tariffs operate.

Electricity supply in Peninsular Malaysia is a regulated industry.

The Energy Commission (Suruhanjaya Tenaga, ST) is responsible for regulating the electricity supply industry, including the tariff framework.

Under Section 26 of the Electricity Supply Act 1990, ST may determine tariffs and charges to be levied by a licensee, subject to approval by the Minister. ST states that electricity tariff reviews and determinations in Peninsular Malaysia and Labuan are currently carried out under the IBR framework.

This means that electricity tariffs should not be understood simply as prices independently determined by TNB.

There is instead a regulatory process involving:

Government

→ establishes and approves the overall policy and tariff decisions within the applicable statutory framework;

Energy Commission

→ regulates the electricity industry and develops, reviews and determines tariff arrangements within its statutory role;

TNB and other regulated entities

→ provide information on costs, investments, operational requirements and forecasts, and operate the regulated electricity system within the approved framework.

The regulatory framework is intended to provide a structured and transparent approach to tariff determination while encouraging regulated entities to improve efficiency.

This is important when considering the question:

Why does electricity cost what it does?

The answer is not simply “because TNB sets the price.”

The tariff is the outcome of a regulated framework intended to recover the efficient costs of supplying electricity while providing appropriate incentives and returns to regulated entities.

What Is Incentive-Based Regulation?

Incentive-Based Regulation (IBR) was introduced in Malaysia’s electricity sector in 2014 as part of the modernisation of electricity-sector regulation.

ST describes IBR as a structured approach to tariff setting that takes into account the substantial capital expenditure and operating expenditure required by regulated utilities. It also incorporates efficiency incentives and performance monitoring.

At its simplest, IBR can be understood as an attempt to answer a fundamental regulatory question:

How much revenue does the regulated electricity system reasonably need to provide electricity reliably and efficiently?

The answer involves more than the price of fuel.

The regulatory framework considers matters such as:

• operating expenditure;
• capital expenditure;
• regulated assets;
• depreciation;
• allowed returns;
• system performance;
• efficiency;
• forecast demand;
• and other relevant regulatory factors.

Rather than revising tariffs continuously in response to every individual change in cost, IBR establishes a regulatory period within which the expected costs and revenues of the regulated businesses are assessed.

The current RP4 is the fourth regulatory cycle and applies from 1 July 2025 to December 2027.

ST describes the IBR framework as incorporating prudent and efficient costs, a structured regulatory period, regulatory accounts, a fair and reasonable return to regulated entities, performance targets and efficiency-sharing mechanisms.

IBR is not the same as a single electricity price

This distinction is important.

IBR is the regulatory framework through which the revenue requirements and performance of regulated electricity businesses are assessed.

It does not mean that every customer simply pays an identical share of those costs.

The final tariff structure can contain different categories and different charging mechanisms for different types of customers.

For example, customers can differ in:

• supply voltage;
• maximum demand;
• energy consumption;
• time of use;
• and other characteristics relevant to the tariff structure.

Therefore:

IBR establishes the regulatory framework for determining electricity tariffs; it does not mean that every customer is charged the same rate for every unit of electricity.

This distinction will become particularly important later in the MDCO series when we examine how electricity-system costs are allocated between different customer classes.

MDCO Insight: IBR provides the framework for determining the regulated revenue requirements of the electricity system, while the tariff structure determines how those requirements are reflected in charges to different customers.

What Does the Base Tariff Pay For?

The next question is perhaps the most important for understanding the relationship between electricity tariffs and infrastructure.

What is actually included in the tariff?

ST explains that the electricity tariff under IBR consists principally of two components:

1. the Base Tariff; and
2. the Automatic Fuel Adjustment (AFA) mechanism.

The Base Tariff is intended to reflect the efficient cost of supplying electricity.

According to ST, it includes:

• fuel prices and base generation-related costs;
• capital expenditure and operating expenditure for transmission;
• capital expenditure and operating expenditure for distribution;
• Grid System Operation;
• Single Buyer functions;
• customer service and retail;
• and a fair return on the regulated asset base associated with these regulated activities.

This is significant because it demonstrates that an electricity tariff is connected to the wider electricity system.

A simplified physical representation is:

Generation
→ electricity is produced.
↓
Transmission
→ high-voltage infrastructure transports electricity over the network.
↓
Distribution
→ electricity is delivered through progressively lower-voltage networks.
↓
System operation
→ the electricity system is coordinated and operated.
↓
Customer service / retail
→ customers are metered, billed and served.

The tariff framework therefore has to account for much more than the electricity generated at a power plant.

Capital expenditure is part of the framework

Another particularly important point for this MDCO series is the treatment of CAPEX.

ST expressly identifies CAPEX and OPEX for transmission and distribution as components of the base tariff.

This means that investment in the regulated electricity network is not conceptually separate from electricity pricing.

Transmission lines, substations, transformers and other regulated infrastructure require capital investment.

Those assets then form part of the regulated electricity business and, subject to the applicable regulatory treatment, contribute to the costs and returns that are considered in tariff determination.

However, an important qualification is needed.

This does not mean:

“Every piece of electricity infrastructure is divided equally among every electricity consumer.”

Nor does it mean that the tariff paid by a particular customer directly corresponds to the exact physical cost of every asset that customer uses.

The regulatory and tariff mechanisms are more complicated than that.

This distinction between physical infrastructure cost and tariff cost recovery will become central to the later A10 analysis.

The regulated asset base

IBR also recognises a regulated asset base.

In simplified terms, this represents the value of assets that are recognised within the regulated business for purposes of determining the appropriate return and other regulatory calculations.

ST states that the base tariff includes a fair return on the regulated asset base for transmission, distribution, system operation, Single Buyer and retail functions.

For MDCO’s purposes, this establishes an important conceptual link:

Electricity infrastructure is not merely a physical asset; within the regulatory framework, certain infrastructure becomes part of the economic foundation from which regulated electricity costs and returns are determined.

Understanding precisely how individual assets enter that framework, how they are valued and how costs are ultimately distributed between customer categories is a more detailed question.

That question will be examined later rather than assumed here.

Generation Cost and the Automatic Fuel Adjustment

The cost of generating electricity is different from the cost of maintaining the transmission and distribution networks.

Generation costs can change significantly over time because of changes in:

• fuel prices;
• generation costs;
• power-purchase arrangements;
• renewable-energy costs;
• and other factors.

For this reason, the current tariff framework includes the Automatic Fuel Adjustment (AFA).

ST describes AFA as a mechanism for making monthly adjustments to generation charges to reflect variations in relevant generation-related costs. These include fuel prices, costs under Power Purchase Agreements (PPAs) and Service Level Agreements (SLAs), renewable-energy displaced costs and other generation costs.

This is an important change from the previous Imbalance Cost Pass-Through (ICPT) mechanism.

The AFA mechanism took effect from July 2025 as part of RP4.

Why is AFA separate from the base tariff?

The distinction can be understood conceptually.

The Base Tariff is established for the regulatory period based on forecast and regulated costs.

The AFA provides a mechanism for adjusting generation-related charges when relevant actual or forecast costs differ from the assumptions incorporated into the base framework.

This allows the tariff system to respond to changes in generation costs without requiring the entire tariff structure to be redesigned every time fuel or other generation-related costs change.

The AFA therefore operates primarily on the generation side of the electricity system.

This is different from the treatment of transmission and distribution infrastructure within the regulated cost framework.

Why does this matter for data centres?

A large data centre can consume electricity continuously and at substantial scale.

Consequently, changes in generation-related costs can have a significant financial effect on its electricity bill.

However, the fact that a data centre consumes a large quantity of electricity does not by itself tell us how much of the underlying generation-system cost it “causes” or should bear.

That is a separate cost-allocation question.

The purpose of E07.02 is to explain the mechanism first.

The analysis of whether the tariff paid by a large customer adequately reflects the costs associated with its electricity demand belongs to the later MDCO research.

MDCO Insight: AFA allows generation-related electricity costs to move with changing conditions, while the base tariff provides the broader regulated framework for recovering the costs of supplying electricity.

Why There Is More Than One Tariff

If electricity is supplied through the same national electricity system, a natural question arises:

Why not simply charge every customer the same price per kWh?

The answer is that electricity customers place different demands on the system.

A household, a small shop, a factory and a large data centre can all consume electricity, but their relationships with the electricity system can be very different.

They can differ in:

• voltage level;
• maximum demand;
• annual energy consumption;
• load profile;
• time of consumption;
• connection requirements; and
• the infrastructure needed to supply them.

The tariff structure therefore differentiates between customer categories rather than applying one universal price.

This approach was significantly revised when the new tariff structure came into effect on 1 July 2025.

ST describes the revised tariff schedule as moving toward tariff categories based on supply-voltage connection levels, comprising domestic and non-domestic customers across low-, medium- and high-voltage categories. The reform also aimed to make charges more transparent and reflective of the underlying cost structure.

This is an important development for understanding large electricity consumers.

Voltage is one of the key distinctions

As explained in →E07 — The Electricity System Supplying Malaysia’s Data Centres, Malaysia’s electricity system operates through several voltage levels.

A household normally receives electricity at low voltage.

A factory may receive supply at a much higher voltage.

A very large data centre may connect directly to the transmission system at 132 kV or 275 kV.

These customers do not interact with exactly the same parts of the electricity system.

For example, a customer receiving electricity at low voltage requires the electricity to pass through more stages of transformation and distribution before reaching the customer’s premises.

A customer connected directly at a transmission voltage has a different physical relationship with the network.

This is one reason why voltage level becomes relevant to tariff classification.

Demand is another distinction

Two customers connected at the same voltage may nevertheless have very different maximum demands.

A small industrial facility and a very large data centre could both be connected at a high voltage, while imposing very different requirements on the system.

This is why tariff structures can incorporate not only energy consumption in kWh, but also demand-related measurements such as kW or kVA, depending on the applicable tariff.

Consumption pattern also matters

Electricity demand varies over time.

A customer that consumes electricity primarily during periods of lower system demand can have a different effect on the electricity system from one that imposes a large load during periods of high demand.

This provides a basis for differentiated peak and off-peak charges under applicable tariff arrangements.

The current tariff reforms also revised peak and off-peak periods to better reflect prevailing system-demand conditions.

The data-centre connection

For data centres, these distinctions are particularly relevant because a large facility may combine:

• very high maximum demand;
• high annual energy consumption;
• high-voltage connection;
• and relatively continuous operation.

The tariff framework therefore treats large electricity customers differently from ordinary low-voltage consumers.

But it is important not to interpret this simply as a special “data-centre tariff.”

The underlying principle is broader:

Customers with different electricity-system characteristics can be placed within different tariff categories.

The data centre becomes relevant because its scale and electrical characteristics place it at the upper end of the electricity-consumption spectrum.

This provides the foundation for the next section of the article, where the tariff categories and their individual components can be examined in greater detail.

MDCO Insight: Electricity tariffs are differentiated because customers place different demands on the electricity system; the large scale of data-centre demand makes this distinction particularly important.

Voltage Level and Tariff Category

The physical electricity system described in →E07 — The Electricity System Supplying Malaysia’s Data Centres is organised into different voltage levels.

The tariff system now reflects this structure more explicitly.

Under the electricity tariff reforms effective from 1 July 2025, non-domestic consumers are categorised according to their supply voltage, including Low Voltage (LV), Medium Voltage (MV) and High Voltage (HV) categories. The reform also introduced the Ultra High Voltage (UHV) category. Suruhanjaya Tenaga describes the revised tariff structure as incorporating energy, capacity, network and retail charges based on cost-related components.

This creates a useful link between the physical system and the commercial structure.

In simplified terms:

Low voltage
→ typically smaller consumers and installations supplied at lower voltage.

Medium voltage
→ larger commercial and industrial consumers requiring higher-capacity supply.

High voltage
→ large electricity consumers connected directly to higher-voltage networks.

Ultra high voltage
→ data centre consumers connected directly to higher-voltage networks.

The exact tariff category depends on the applicable tariff rules and supply arrangement. It is therefore important not to treat voltage classification as merely a label attached to a particular industry.

Why does voltage matter?

Consider the difference between a household receiving electricity at 230 V and a very large customer connected at 132 kV or 275 kV.

They are both electricity consumers.

But their physical relationship with the electricity system is very different.

A high-voltage customer may:

• connect directly to a higher-voltage part of the network;
• bypass some lower-voltage network stages;
• require different connection infrastructure;
• impose a substantially larger maximum demand;
• have a different load profile;
• require more extensive system planning;
• and have different supply-security requirements.

The physical infrastructure required to serve such a customer is therefore different from that required to serve a typical household.

This is one reason why tariff design cannot be understood simply by asking:

How many kilowatt-hours did the customer consume?

The electricity system must also consider where and how the customer connects to the system and what capacity the system must make available to serve that customer.

Data centres and the UHV category

This becomes particularly relevant to data centres.

In its 2026 AGM materials, TNB stated that data-centre customers are categorised under the Ultra High Voltage (UHV) tariff segment, which TNB described as representing the highest tier of tariff rates. TNB also reported that data centres accounted for approximately 4% of its total electricity sales in FY2025 and that, as of December 2025, it had secured 56 data-centre projects with approximately 7.5 GW of maximum demand.

This is an important current development in Malaysia’s electricity tariff structure.

It should, however, be interpreted carefully.

The UHV classification should not be understood simply as an arbitrary tariff imposed because a customer happens to be called a “data centre”.

Rather, the category is closely associated with the characteristics of the supply being provided to these very large electricity users.

TNB’s published material identifies data-centre customers as the customer group within the UHV segment, while the wider tariff reform itself is structured around supply-voltage categories.

The important conceptual distinction is therefore:

The electricity tariff reflects the customer’s applicable supply and load characteristics; the customer is not classified solely by the name of its industry.

This matters because data centres are not the only facilities capable of being large electricity consumers.

A major industrial facility, manufacturing complex or other energy-intensive development can also impose substantial demands on the electricity system.

The particular significance of data centres is the scale, concentration and growth rate of their demand.

What Appears on the Electricity Bill?

It is tempting to think of an electricity bill as a simple calculation:

Electricity consumed × tariff rate

For many years, this was a useful way of thinking about electricity pricing.

The current Malaysian tariff structure is more sophisticated.

The tariff reforms effective from 1 July 2025 reorganised non-domestic tariffs around several distinct components:

• Energy Charge
• Capacity Charge
• Network Charge
• Retail Charge

Suruhanjaya Tenaga explains that these components are intended to reflect the underlying cost structure of electricity supply.

The bill therefore reflects more than the quantity of electricity consumed.

Energy charge

The energy charge is associated with the amount of electricity actually consumed.

It is normally expressed in:

sen/kWh

If a customer consumes more electricity, the energy component of the bill generally increases accordingly.

For a data centre operating continuously, this component can become substantial because the facility may consume electricity throughout the day and night.

Capacity charge

The capacity charge reflects the capacity that the electricity system must provide for the customer.

This is conceptually different from the amount of electricity actually consumed.

Two customers could consume the same number of kilowatt-hours over a period but have different demand characteristics.

One might require a large amount of capacity for a short period.

Another might operate at a relatively stable high load throughout the month.

The tariff structure can therefore recognise the capacity requirement separately from energy consumption.

This is particularly relevant to large electricity users.

Network charge

The network charge relates to the electricity network required to transport electricity to consumers.

This includes the regulated network infrastructure through which electricity is transmitted and distributed.

The important point is that a network is not simply a collection of cables leading individually to each consumer.

It is a large interconnected system containing substations, transformers, lines, cables, protection systems, control systems and other infrastructure.

The network charge therefore needs to be understood within the wider regulated electricity system rather than as a literal invoice for every physical asset used by an individual customer.

This distinction will become particularly important later in the A10 series.

Retail charge

The retail charge relates to the functions required to provide electricity retail services to customers.

These include activities such as customer service, billing, metering-related functions and other retail activities.

The charge illustrates another important characteristic of modern electricity tariffs:

The electricity bill can contain components associated with different functions within the electricity supply chain.

Automatic Fuel Adjustment

The current framework also includes the Automatic Fuel Adjustment (AFA) mechanism.

Suruhanjaya Tenaga explains that AFA allows monthly adjustments to generation-related charges to reflect changes in fuel prices, costs under Power Purchase Agreements and Service Level Agreements, renewable-energy displaced costs and other generation-related costs.

This is different from the underlying base tariff.

The base tariff is established under the regulatory framework for a regulatory period.

AFA provides a mechanism to reflect specified changes in generation-related costs during that period.

The result is that the final amount paid by a customer can change even when the underlying tariff structure itself has not been fundamentally redesigned.

Other applicable arrangements

Depending on the customer and the electricity programme involved, additional arrangements can also affect the customer’s electricity cost.

These may include:

• Time-of-Use arrangements;
• Enhanced Time-of-Use arrangements;
• green electricity programmes;
• system-access arrangements;
• incentives or rebates where applicable;
• and other approved mechanisms.

The exact combination depends on the customer’s tariff category and participation in applicable programmes.

For MDCO’s purposes, the important point is that the electricity price paid by a large customer is the result of several interacting components rather than one universal price per kWh.

MDCO Insight: An electricity bill is not simply a charge for energy consumed; it can reflect energy, capacity, network and retail functions within the wider electricity system.

Why Maximum Demand Matters

One of the most important concepts for understanding electricity pricing is the distinction between energy and demand.

Energy consumption

Energy is commonly measured in:

kWh — kilowatt-hours

It measures how much electricity has been consumed over time.

For example, a facility consuming 1 MW continuously for 10 hours uses approximately:

10 MWh

or:

10,000 kWh

Maximum demand

Demand is different.

It represents the level of electrical power that the system must be capable of supplying at a particular point in time.

It is commonly expressed in:

kW

or, depending on the electrical context:

kVA

This distinction is fundamental.

A customer can consume a large quantity of electricity while maintaining a relatively stable demand.

Another customer could have a much higher instantaneous demand but operate for fewer hours.

The two customers therefore place different requirements on the electricity system.

Why does this matter to the utility?

The electricity system has to be capable of supplying the customer’s demand when required.

That means the utility cannot design its infrastructure only according to annual energy consumption.

It also needs to consider:

How much capacity must be available when the customer needs it?

This affects:

• generation capacity;
• transmission capacity;
• transformer capacity;
• substation capacity;
• distribution infrastructure;
• system security;
• and reserve requirements.

This is one reason why the current tariff framework separates energy and capacity components. Suruhanjaya Tenaga describes the revised tariff as having separate energy, capacity, network and retail charges.

Why this is especially relevant to data centres

Data centres have a distinctive electricity-load profile.

A major data centre may have:

• very large electrical demand;
• high utilisation;
• continuous operation;
• substantial cooling requirements;
• relatively stable baseline demand;
• and limited ability to simply switch off large portions of the load during periods of system stress.

This means a data centre can simultaneously represent:

a large energy consumer

and

a large capacity requirement.

The distinction is important.

Suppose two customers each consume 100 GWh in a year.

Customer A might consume electricity relatively evenly throughout the year.

Customer B might consume electricity in shorter periods with substantial peaks.

Their annual energy consumption is identical.

But the electricity system may need to provide considerably more capacity to accommodate Customer B’s peak requirement.

This is why a tariff system that considers both energy and capacity can provide a more nuanced representation of the requirements imposed on the electricity system.

Load factor

This also introduces the concept of load factor.

In simplified terms, load factor compares the customer’s average demand with its maximum demand over a period.

A customer whose electricity consumption remains relatively constant tends to have a higher load factor.

A customer whose demand fluctuates substantially tends to have a lower load factor.

For a continuously operating data centre, the load factor can be relatively high, although the actual profile depends on the facility’s design and operation.

A high load factor does not mean that the customer imposes no infrastructure requirement.

Rather, it means that the capacity required by the customer is utilised for a relatively large proportion of the time.

This distinction will become important later when considering the relationship between tariff payments and infrastructure costs.

MDCO Insight: Electricity pricing must distinguish between the energy a customer consumes and the capacity that the electricity system must continuously be prepared to provide.

Peak and Off-Peak Electricity

Electricity demand does not remain constant throughout the day.

Households, offices, factories, commercial buildings and other consumers change their electricity consumption according to their activities.

As a result, the electricity system experiences periods of higher and lower demand.

Why does the timing matter?

Suppose a customer consumes 1,000 MWh over a month.

From an annual or monthly energy perspective, the quantity is clear.

But the system impact can be different depending on when that electricity is consumed.

If a large proportion of consumption occurs during a period when the electricity system is already experiencing high demand, the additional load can place greater pressure on:

• generation capacity;
• transmission networks;
• substations;
• reserve margins;
• and system operations.

If some consumption can instead be shifted to lower-demand periods, the same amount of total energy may be accommodated more efficiently.

This is the basic rationale behind Time-of-Use (TOU) tariffs.

Peak and off-peak periods

Under a conventional TOU structure, electricity consumed during higher-demand periods may attract a higher rate, while electricity consumed during lower-demand periods may attract a lower rate.

The objective is not merely to charge customers differently.

It is also to create an economic signal:

Use electricity when the system has greater capacity available, where the customer’s operations allow that flexibility.

Suruhanjaya Tenaga states that TOU is intended to encourage efficient energy use and demand-side management, including shifting consumption away from peak periods.

Malaysia’s revised time periods

The July 2025 tariff reform revised the peak and off-peak periods to reflect contemporary system-demand conditions.

For the revised TOU structure, Suruhanjaya Tenaga announced a substantially longer off-peak period, covering:

• 10 pm to 2 pm on Monday to Friday; and
• the whole of Saturday and Sunday.

The reform therefore created a significantly longer period in which off-peak rates could apply.

The precise applicable tariff and programme depend on the customer category.

The principle, however, is straightforward:

The electricity system places value not only on how much electricity is consumed, but also on when it is consumed.

Enhanced Time-of-Use

Malaysia has also introduced an Enhanced Time-of-Use (ETOU) scheme.

ETOU introduces a mid-peak period between peak and off-peak periods and provides different energy and demand charges according to the applicable time zone. Suruhanjaya Tenaga describes the scheme as introducing three energy-rate periods and two demand-charge periods.

This represents a further refinement of the principle.

Instead of treating the day simply as:

Peak vs Off-Peak

the tariff can distinguish among:

Peak → Mid-Peak → Off-Peak

This gives customers a more detailed price signal.

The data-centre question

This raises an interesting issue for data centres.

Many industrial processes can potentially shift some activities in time.

For example, a factory may be able to reschedule certain energy-intensive operations.

A data centre is different.

Its core IT load is generally intended to operate continuously.

Servers cannot simply be switched off every afternoon because the electricity tariff becomes more expensive.

Cooling systems also need to continue operating to maintain the required environmental conditions.

There may nevertheless be some flexibility in:

• cooling-system operation;
• battery charging;
• energy-storage systems;
• backup generation;
• workload scheduling;
• non-critical computing activities;
• and other supporting systems.

The extent of this flexibility depends on the technology and operational requirements of each facility.

This creates an important area for future MDCO research:

How effectively can large data centres respond to time-based electricity price signals without compromising reliability or service availability?

For the present article, the key point is that tariff design increasingly recognises the timing of electricity demand as well as its quantity.

MDCO Insight: Time-based tariffs recognise that the same amount of electricity can have different implications for the electricity system depending on when it is consumed.

Does a Higher-Voltage Customer Pay Less Because It Uses Less of the Distribution Network?

This is one of the most intuitive — but also one of the most easily misunderstood — questions in electricity tariff analysis.

Consider a data centre connected at 275 kV.

It does not receive electricity through every lower-voltage stage of the electricity network in the same way that a household supplied at 230 V does.

It may bypass substantial portions of the lower-voltage distribution network.

It is therefore tempting to reason:

“If the data centre does not use the 11 kV network, why should it pay for distribution?”

There is some physical logic behind the question.

But the tariff system cannot be understood simply by tracing the physical path of a particular electron.

Physical cost causation

One way of thinking about electricity costs is through physical cost causation.

The question is:

Which infrastructure does a particular customer actually use, or what infrastructure is required because of that customer’s demand?

For example:

• a household supplied at low voltage requires low-voltage infrastructure;
• a medium-voltage industrial customer requires medium-voltage infrastructure;
• a 132 kV or 275 kV customer requires high-voltage connection infrastructure and appropriate network capacity.

This is a useful engineering perspective.

But it is not identical to the way regulated tariffs are necessarily calculated.

Tariff cost recovery

A regulated electricity tariff has another purpose:

to recover the allowable costs of the regulated electricity system through an approved tariff structure.

Suruhanjaya Tenaga states that the base tariff under IBR reflects the efficient cost of supplying electricity and includes fuel costs, CAPEX and OPEX for transmission, distribution, Grid System Operation, Single Buyer and Customer Service/Retail, together with an allowed return on the regulated asset bases of the relevant regulated businesses.

The tariff therefore operates at the level of the regulated electricity system, not simply as a physical invoice for the exact equipment touched by each customer.

This distinction is critical.

A customer may not physically use a particular lower-voltage circuit.

That does not automatically mean that the customer’s tariff contains no contribution toward the regulated costs associated with the wider electricity system.

Conversely, the existence of a network charge does not mean that the customer is being individually billed for every network asset in proportion to its physical usage.

Two different questions

It is therefore useful to distinguish:

Physical cost causation

Which infrastructure does this customer use, require or cause to be reinforced?

from:

Tariff cost recovery

How does the regulated tariff structure recover the allowable costs of the electricity system across the applicable customer categories?

These are related questions.

They are not the same question.

This distinction becomes particularly important when examining very large electricity consumers.

A data centre connected directly to a high-voltage network may bypass certain lower-voltage infrastructure.

At the same time, its very large demand can require:

• additional transmission capacity;
• transformer capacity;
• system reinforcement;
• additional reserve requirements;
• network upgrades;
• and potentially new generation capacity.

The physical and economic relationships therefore extend beyond the simple question of which voltage level the customer’s electricity passes through.

The issue remains open

Therefore, this article does not attempt to conclude that high-voltage customers either “pay for distribution” or “do not pay for distribution” in some simple proportional sense.

The answer depends on the design of the tariff structure and the underlying cost-allocation methodology.

That is precisely where the A10 series will go deeper.

MDCO Insight: A customer’s physical use of the network and its contribution to regulated electricity-system cost recovery are related but different questions.

Does Each Customer Pay Its “Share” of the IBR Cost?

Another natural question follows.

If IBR determines the allowable revenue requirement for the regulated electricity system, does every customer simply pay an equal share of that cost?

The answer is no.

IBR should not be understood as a simple calculation in which the total cost of the electricity system is divided equally among all consumers according to their kWh consumption.

What IBR does

The Incentive-Based Regulation framework establishes the regulatory basis for determining the allowable revenue and costs of the regulated electricity sector.

Suruhanjaya Tenaga explains that the framework includes determination of regulated and non-regulated businesses, financial and technical efficiency targets, and the mechanisms for recovering generation-related costs.

For the current RP4, the regulatory period runs from July 2025 to December 2027. The base tariff reflects efficient electricity-supply costs, while AFA provides a mechanism to adjust generation-related charges for specified changes in actual costs.

But establishing the regulated revenue requirement is only one part of the process.

The next question is:

How should that revenue requirement be translated into charges for different customers?

That is where tariff design becomes important.

Different customer categories

The current tariff structure differentiates customers by categories including:

• domestic and non-domestic;
• low voltage;
• medium voltage;
• high voltage;
• and ultra-high voltage.

Within those categories, the tariff can also distinguish between different charging components and, where applicable, time-of-use arrangements.

This means that customers do not necessarily contribute to the recovery of regulated costs in proportion to a single universal metric.

Instead, the tariff structure contains different price signals.

Energy charges

Some costs are recovered through charges based on energy consumption.

A customer consuming more kWh therefore contributes more through the energy component.

Capacity charges

Other costs are reflected through capacity-related charges.

This recognises that the electricity system must maintain sufficient capacity to serve large demand, even though that capacity is not necessarily consumed as energy every second.

Network charges

Network-related costs are reflected through network charges.

Again, the existence of such a charge should not be interpreted as a direct invoice for the physical network assets used by an individual customer.

The tariff is a regulated cost-recovery mechanism.

Retail charges

Retail functions are separately represented through retail charges.

This is another illustration of the principle that different functions within the electricity system can be reflected through different tariff components.

Time-based pricing

Where TOU or ETOU applies, the tariff can further differentiate charges according to when electricity is consumed.

This introduces another dimension:

Not only how much electricity is consumed, but when it is consumed.

Therefore, “equal share” is the wrong mental model

It is more accurate to think of the tariff as a structured cost-recovery mechanism rather than an equal-cost-sharing mechanism.

A simplified conceptual representation is:

Regulated electricity-system costs
↓
IBR determines the regulatory framework and allowable revenue requirements
↓
Tariff structure allocates charges among customer categories and charging components
↓
Customers pay according to their applicable tariff, demand, consumption and other characteristics

This is very different from:

Total system cost ÷ total kWh = identical price for everyone

The actual system is considerably more differentiated.

Why this matters for data centres

The distinction becomes especially important for data centres because their characteristics are unusual compared with many other customers.

They may have:

• very large maximum demand;
• very high annual electricity consumption;
• high load factors;
• high-voltage connections;
• continuous operation;
• substantial requirements for network capacity;
• and potentially significant requirements for future network expansion.

The question therefore becomes more complex than:

“How many kWh does the data centre consume?”

A more complete question is:

“How does the tariff structure translate the electricity system’s costs and the customer’s demand characteristics into the charges paid by that customer?”

This is a much more useful question for understanding the relationship between data centres and the electricity system.

What this article does not yet establish

It is important not to move too quickly from this conceptual explanation to a conclusion about whether any particular customer class pays its “fair share”.

That would require detailed analysis of:

• the IBR regulatory determination;
• the regulated asset base;
• transmission and distribution costs;
• generation costs;
• tariff-setting methodology;
• customer-class cost allocation;
• capacity and network components;
• demand assumptions;
• tariff rates;
• and the treatment of new versus existing infrastructure.

Those questions go beyond the purpose of this Explain article.

They belong to the Analyse series.

MDCO Insight: IBR establishes the regulatory framework for electricity cost recovery, but customers do not simply divide the total system cost equally; different tariff structures determine how different customer categories are charged.

Where This Leads

The discussion so far has established an important distinction.

Malaysia’s electricity tariff system is not simply a single price for electricity.

It is a structured framework that recognises several dimensions of electricity supply:

Voltage
→ where the customer connects to the electricity system.

Energy
→ how much electricity the customer consumes.

Capacity
→ how much electrical capacity the system must provide.

Network
→ the regulated infrastructure required to transport electricity.

Time
→ when electricity is consumed.

Retail
→ the services required to manage the customer relationship.

Generation-cost adjustment
→ changes in specified generation-related costs through mechanisms such as AFA.

The result is a tariff structure that attempts to translate a complex physical electricity system into a set of charges that can be applied to different customer categories. The current IBR framework explicitly recognises the cost of transmission, distribution and other regulated functions, while the revised tariff structure separates energy, capacity, network and retail charges.

For data centres, this is particularly significant.

A large data centre is simultaneously:

• a very large energy consumer;
• a high-capacity electricity customer;
• a high-voltage network customer;
• a continuously operating load;
• and, increasingly, an important source of new electricity-system demand.

The tariff therefore provides one mechanism through which the relationship between data centres and the electricity system is expressed financially.

But it does not, by itself, answer the deeper question.

That question is:

Does the tariff paid by a large data centre fully reflect the costs that its electricity demand imposes on the wider electricity system?

And an equally important question follows:

How are the costs of infrastructure that already exists, infrastructure built specifically for a new customer, and infrastructure reinforced because of growing demand ultimately allocated?

These are not purely tariff questions.

They involve the relationship between:

connection charges

→ tariffs
→ IBR
→ regulated assets
→ network investment
→ generation investment
→ customer demand
→ cost allocation.

That is the point at which the MDCO series moves from Explain to Analyse.

The next stage will therefore examine not only what customers are charged, but how the underlying electricity-system costs are allocated across the different components and customer classes.

That analysis becomes particularly important when a rapidly growing group of very large electricity users begins to connect to an electricity network that was developed over many years for a much broader population of consumers.

The Relationship Between Tariffs and Infrastructure Investment

The discussion in →E07 and →E07.01 established that supplying electricity to a large data centre can involve substantial physical infrastructure.

Transmission lines, substations, transformers, distribution facilities and other network assets require capital investment. Some assets may already exist before a new customer connects, while others may need to be constructed or expanded as electricity demand grows.

This raises an important question:

How does the investment required to operate and expand the electricity system ultimately enter the electricity tariff framework?

Under Malaysia’s Incentive-Based Regulation (IBR) framework, capital expenditure is an important part of the regulated cost structure.

The Energy Commission (ST) states that the base tariff reflects the efficient cost of supplying electricity and includes CAPEX and OPEX for transmission, distribution, Grid System Operation, Single Buyer and retail activities, together with a fair return on the regulated asset base.

In simplified conceptual terms:

Infrastructure investment
↓
Regulated asset base and approved capital expenditure
↓
Allowed revenue requirement
↓
Base tariff determination
↓
Electricity charges paid by consumers

This establishes an important relationship between electricity infrastructure and electricity tariffs.

However, this relationship should not be misunderstood.

It does not mean that every new transmission line, transformer or substation is simply divided equally among all electricity customers and added to their bills.

The regulatory treatment of infrastructure is considerably more structured.

The regulator determines what expenditure is prudent and efficient, what assets form part of the regulated framework, the appropriate return on regulated assets, depreciation and other components of the allowed revenue requirement. ST’s IBR framework is specifically designed to assess the regulated entity’s expenditure and performance rather than simply passing every expenditure item automatically to consumers.

This distinction is fundamental to understanding the later MDCO research.

There are therefore two separate questions:

How does infrastructure investment enter the regulated revenue requirement?

and:

How is that regulated revenue requirement ultimately reflected across different customer categories and tariff structures?

The first question belongs to the mechanics of IBR.

The second involves tariff design and cost allocation.

They are related, but they are not the same question.

Regulated assets and infrastructure

The IBR framework provides a mechanism through which regulated assets are recognised in determining the utility’s allowed revenue.

ST’s published tariff-determination materials include separate regulatory asset-base inputs for transmission and distribution assets, covering categories such as land, buildings and civil works, plant and machinery, mains and lines, distribution services and meters.

This is important because it demonstrates that the regulated electricity system is not simply a collection of operating expenses.

It is also a capital-intensive infrastructure system.

The electricity tariff therefore has a relationship with both:

• the cost of operating the system; and
• the capital invested in the system.

But again, recognising an asset within the regulated framework does not by itself tell us which particular customer ultimately bears what proportion of its cost.

That is a separate analytical question.

MDCO Insight: IBR establishes how regulated infrastructure and other efficient costs enter the revenue-recovery framework; it does not by itself reveal how the resulting costs are distributed among individual customer classes.

Connection Charges vs Tariffs vs Network Cost Recovery

Several terms used in discussions about electricity costs can appear similar but describe different mechanisms.

For the purposes of this series, it is useful to keep them separate.

Concept	Main question
Connection charge	What payment is required to establish or upgrade a particular electricity supply?
Electricity tariff	What does the customer pay for electricity consumption under the applicable tariff?
IBR	How is the regulated utility’s allowable revenue requirement established?
AFA	How are changing generation-related costs adjusted?
Network cost recovery	How are the costs of the wider electricity system ultimately recovered?

Connection charges

As discussed in →E07.01, connection charges relate to establishing or upgrading the infrastructure required to provide a particular electricity supply.

They are therefore closely associated with the connection stage.

Electricity tariffs

Tariffs apply to the customer’s electricity consumption after the supply is energised.

Depending on the applicable tariff category, this can involve energy charges, maximum-demand charges and other components.

Tariffs therefore relate primarily to the ongoing electricity supply relationship.

IBR

IBR is the regulatory framework through which ST determines the allowable revenue requirements and tariff framework for the regulated electricity system.

ST describes IBR as providing a structured approach to tariff setting based on prudent and efficient costs, regulated assets, returns, performance targets and other regulatory parameters.

AFA

The Automatic Fuel Adjustment (AFA) is different again.

ST states that AFA allows monthly adjustment of generation-related charges to reflect changes in fuel prices, costs under Power Purchase Agreements and Service Level Agreements, renewable-energy displaced costs and other generation costs.

Network cost recovery

Finally, there is the broader question of how the costs of the electricity system are ultimately recovered.

This is the question that becomes particularly important for MDCO.

A customer may pay:

connection charges

and later:

electricity tariffs

But these payments should not automatically be interpreted as a direct invoice for every asset that physically contributes to the customer’s electricity supply.

The regulated electricity system operates as an interconnected system, with different assets, customer categories, regulatory mechanisms and tariff components.

Consequently:

Connection charges, electricity tariffs, IBR and network cost recovery interact with one another, but they should not be treated as interchangeable concepts.

This distinction is essential before attempting to answer the much more difficult question of who ultimately bears the cost of infrastructure used by a major new electricity customer.

Electricity Supply Agreements with Data Centres

The rapid growth of data centres has also introduced another important contractual element into the electricity-supply landscape: the Electricity Supply Agreement (ESA).

An ESA can establish the contractual and commercial arrangements between TNB and a major electricity customer.

This is particularly relevant for data centres because of the scale of their proposed electricity requirements and the need for long-term planning.

TNB’s 2026 corporate disclosures indicate substantial ESA activity associated with data-centre projects. TNB reported that, as of December 2025, it had secured 56 data-centre projects representing approximately 7.5 GW of maximum demand, while 18 ESAs were signed during FY2025, representing approximately 1.7 GW. TNB also reported three additional ESAs signed by March 2026.

These figures illustrate the scale of electricity demand being planned through major data-centre developments.

However, the existence of an ESA should not automatically be interpreted as meaning that a data centre receives a tariff outside Malaysia’s regulated tariff framework.

Several concepts need to be kept separate:

• regulated tariff;
• contractual supply commitments;
• connection arrangements;
• maximum-demand commitments;
• project-specific infrastructure arrangements; and
• other commercial terms contained in the agreement.

An ESA may therefore be important to the commercial relationship between TNB and a major customer without necessarily replacing the applicable regulated tariff framework.

This is an area where precise contractual details matter.

For example, a public announcement that an ESA has been signed does not, by itself, establish that the customer has received a special electricity rate, nor does it establish how the cost of particular network assets is treated.

Those questions would require examination of the relevant tariff framework, connection arrangements and, where appropriate, the contractual terms.

TNB’s 2026 disclosure also states that data-centre customers are categorised under the Ultra High Voltage (UHV) tariff segment, which TNB describes as the highest tier of tariff rates.

This provides an important current reference point for understanding the tariff relationship between TNB and major data-centre customers.

For MDCO, the ESA therefore raises a useful future dialogue question:

How do the contractual commitments contained in major electricity-supply agreements interact with the regulated tariff, connection arrangements and long-term electricity-system planning?

That question is better explored through evidence and stakeholder dialogue than through assumptions.

What the Current Tariff Framework Means for Data Centres

The preceding sections can now be brought together.

A major data centre typically has several characteristics that distinguish it from an ordinary electricity customer:

• very high maximum demand;
• high-voltage connection;
• high annual electricity consumption;
• relatively continuous operation;
• substantial requirements for system capacity;
• and potentially significant future expansion.

Its relationship with the electricity system can therefore be viewed through several interconnected dimensions.

Connection

The size and characteristics of the proposed load influence:

• the required supply voltage;
• connection point;
• connection infrastructure;
• system studies;
• and potentially network reinforcement.

This was the subject of →E07 — The Electricity System Supplying Malaysia’s Data Centres and →E07.01 — Applying for Electricity Supply to a Data Centre in Malaysia.

Tariff category

The customer’s supply characteristics determine the applicable tariff category.

TNB’s 2026 corporate disclosure specifically identifies data-centre customers as being within the UHV tariff segment.

Maximum demand

The customer may be charged according to the maximum demand it imposes on the electricity system, depending on the applicable tariff.

This means the electricity bill can reflect not only how much energy is consumed but also the capacity that the system must be prepared to provide.

Energy consumption

The customer also pays for electricity consumed, generally measured in kWh.

For a data centre operating continuously, annual electricity consumption can therefore be very substantial even where the instantaneous demand remains relatively stable.

Generation costs

Generation-related costs are incorporated into the electricity-pricing framework through the base tariff and AFA mechanism.

AFA provides monthly adjustment for changes in specified generation-related costs.

Regulated network costs

Transmission and distribution CAPEX and OPEX, together with regulated returns, form part of the base-tariff framework.

The overall relationship can therefore be represented conceptually as:

Connection
→ voltage and infrastructure requirements

Tariff category
→ classification according to supply characteristics

Demand
→ maximum-demand considerations

Energy consumption
→ kWh-based charges

Generation costs
→ base generation costs + AFA adjustments

Regulated network costs
→ incorporated within the wider tariff framework

This makes the data-centre sector a particularly interesting case for studying electricity cost allocation.

A data centre can simultaneously be:

• a very large consumer of electricity;
• a high-voltage customer;
• a major source of new demand;
• a customer requiring substantial connection infrastructure;
• and a participant in a tariff system designed to recover the costs of an electricity network serving many different types of consumers.

The technical and financial relationships are therefore intertwined.

But that does not mean they should be collapsed into one calculation.

What This Article Does Not Yet Answer

This article has explained the principal concepts behind Malaysia’s electricity tariff framework.

It has not attempted to determine whether a particular customer is paying more or less than the cost of the infrastructure associated with its electricity supply.

That distinction is deliberate.

Several important questions remain.

How much of regulated CAPEX relates to transmission?

IBR explicitly recognises transmission CAPEX within the regulated cost framework.

But understanding the total amount of transmission investment is different from determining how that cost is allocated across customer categories.

How much relates to distribution?

The same question applies to distribution.

A customer connected at 275 kV may have a very different physical relationship with the distribution network from a household supplied at 230 V.

But the existence of that physical difference does not, by itself, establish how tariff costs are allocated.

How are regulated assets allocated between customer classes?

This is one of the most important unanswered questions.

The tariff structure contains different customer categories and charging mechanisms.

Understanding how the underlying regulated costs are translated into those categories requires examining the tariff-determination methodology in considerably greater detail.

Does a high-voltage customer effectively bear less distribution cost?

This is a particularly interesting question.

A 275 kV customer does not physically use every stage of the lower-voltage distribution network.

But whether that means the customer bears proportionately less of the regulated distribution cost cannot be determined simply by tracing the physical path of electricity.

The answer depends on the regulatory and tariff-allocation methodology.

How are generation costs allocated?

Generation represents another major component of electricity-system cost.

A large data centre’s load profile, maximum demand and annual energy consumption may have implications for the system’s generation requirements.

But again, the relationship between those physical characteristics and the tariff paid requires detailed analysis.

How do data-centre tariffs compare with factories?

A particularly useful future comparison would be between data centres and other large industrial customers with similar:

• voltage levels;
• maximum demand;
• load factors;
• operating hours;
• and energy consumption.

Such a comparison could help determine which tariff differences arise from customer classification, voltage level, demand characteristics or other factors.

What happens when a data centre consumes available network capacity?

A new major load can require additional infrastructure.

The important question then becomes:

Who bears the cost when the existing network is insufficient?

That cannot be answered simply by looking at the tariff paid after energisation.

Who bears the cost of subsequent reinforcement?

Network reinforcement may benefit one customer directly while also increasing capacity available to future customers.

The treatment of such infrastructure therefore raises questions about:

• connection charges;
• regulated assets;
• network reinforcement;
• tariff recovery;
• and future customers.

What is the difference between dedicated and shared infrastructure?

This may ultimately be one of the most important questions in the A10 series.

A connection may contain:

customer-specific infrastructure

and:

shared network infrastructure.

The financial treatment of these two categories may be fundamentally different.

These questions should therefore move from Explain into Analyse.

MDCO’s purpose at this stage is not to assert an answer before the evidence has been assembled.

Instead, this article establishes the framework from which those questions can be investigated.

From Tariffs to the Question of Who Pays

A data centre pays for electricity according to its applicable tariff.

But that tariff exists within a much larger electricity system.

That system includes:

• generation;
• transmission;
• distribution;
• regulated assets;
• operating expenditure;
• capital expenditure;
• fuel costs;
• system operation;
• network maintenance;
• customer service;
• and other regulated activities.

The tariff therefore represents the customer’s financial relationship with the electricity system, but it should not automatically be interpreted as a direct price for every physical asset associated with delivering electricity to that customer.

This is perhaps the most important conceptual distinction established by E07.02.

Consider a simplified example.

A data centre may connect to a 275 kV substation.

The electricity supplied to it may involve:

• a new connection circuit;
• existing transmission lines;
• existing generation assets;
• an existing transmission network;
• new or upgraded transformers;
• system-control infrastructure;
• and other assets serving multiple customers.

The data centre may have paid connection charges associated with its supply.

It subsequently pays electricity tariffs.

But these two payments do not necessarily correspond one-for-one with the entire physical infrastructure used to serve the customer.

This leads to the central analytical question:

What is the relationship between the price paid by a large electricity customer and the cost of the electricity system that serves it?

That question requires looking beyond the electricity bill.

It requires understanding:

physical infrastructure

→ capital investment
→ regulated asset base
→ allowed revenue
→ tariff structure
→ customer payments
→ cost allocation

This is where the research moves from explaining the tariff system to examining who ultimately bears the cost of the system.

It is also where the distinction between cost recovery and cost causation becomes increasingly important.

A particular customer may cause a need for new infrastructure.

But that does not necessarily mean the entire cost of that infrastructure is recovered directly from that customer.

Conversely, an asset may be shared across many customers even though a particular customer becomes one of the largest users of it.

Determining the actual treatment requires detailed examination of the regulatory framework and the relevant data.

That is the work that follows.

The Observatory Perspective

Malaysia’s electricity tariff system is designed to recover the regulated costs of supplying electricity while differentiating charges according to customer and supply characteristics.

Under the IBR framework, the base tariff incorporates efficient costs associated with regulated activities, including transmission and distribution CAPEX and OPEX, together with a return on the regulated asset base. The AFA mechanism provides a separate mechanism for adjusting specified generation-related costs as actual conditions change.

For large data centres, the relationship between tariffs and electricity-system costs is particularly significant.

Their combination of:

• very high maximum demand;
• high-voltage connection;
• substantial annual electricity consumption;
• relatively continuous operation;
• and potentially rapid future expansion

means that they interact with the electricity system at a scale that is different from that of most ordinary consumers.

But the important question is not simply:

“What tariff does a data centre pay?”

The deeper question is:

“How does the tariff paid by a large customer relate to the costs of the electricity system that serves it?”

Answering that question requires more than examining the tariff rate.

It requires understanding how:

• connection-specific infrastructure is treated;
• shared network infrastructure is treated;
• regulated transmission and distribution assets are recognised;
• generation costs are recovered;
• costs are allocated among customer categories;
• and future infrastructure investment is incorporated into the regulatory framework.

The article has established what the tariff framework is designed to do but stops at the boundary between tariff explanation and cost-allocation analysis.

It has not attempted to determine whether any particular customer pays its “fair share”, nor whether any customer is subsidising another.

Those are analytical questions requiring evidence.

The next stage of the MDCO series will therefore examine the physical infrastructure and financial mechanisms in greater detail.

Who Pays for the Electricity Infrastructure Supplying Malaysia’s Data Centres?

will move from the question of how electricity is priced to the question of how the costs of the electricity system are ultimately allocated.

The first stage will focus on the network.

The second will examine generation assets and generation-related costs.

Together, these analyses will allow MDCO to examine the relationship between:

the infrastructure required by a rapidly growing electricity customer, the costs recognised within the regulated electricity system, and the mechanisms through which those costs are ultimately recovered.

MDCO Insight: Understanding the tariff tells us what a data centre pays for electricity; understanding cost allocation tells us how those payments relate to the wider electricity system.

Selected References

Malaysian Electricity Regulation and Tariff Framework

• Suruhanjaya Tenaga (ST) – Incentive-Based Regulation (IBR), including the regulatory framework for electricity tariff determination in Peninsular Malaysia, regulatory periods, efficiency mechanisms and the treatment of regulated and non-regulated activities. https://www.st.gov.my/pricing/electricity-pricing-framework/incentive-based-regulation-ibr
• Suruhanjaya Tenaga (ST) – Components of IBR, explaining the Base Tariff and Automatic Fuel Adjustment (AFA) mechanisms, including CAPEX and OPEX for transmission and distribution and returns on regulated assets. https://www.st.gov.my/pricing/electricity-pricing-framework/components-ibr
• Suruhanjaya Tenaga (ST) – Regulatory Implementation Guidelines on Electricity Tariff Determination Under Incentive-Based Regulation (IBR) for Peninsular Malaysia 2025, providing the regulatory basis for the current RP4 tariff framework. https://www.st.gov.my/resources/regulatory-implementation-guidelines-electricity-tariff-determination-under-incentive

Electricity Supply and Connection

• Tenaga Nasional Berhad (TNB) – Electricity Supply Application Handbook (ESAH), covering electricity-supply applications, connection guidelines, demand estimation, supply schemes, metering and related requirements. https://www.tnb.com.my/esah
• Tenaga Nasional Berhad (TNB) – Connection Charges Book 2025, setting out the framework for connection charges according to supply voltage and maximum-demand requirements. https://www.tnb.com.my/assets/files/TNB_Connection_Charges_Book_2025_ENG.pdf

Data Centre Electricity Demand

• Tenaga Nasional Berhad (TNB) – 36th Annual General Meeting – Strategic Questions / Appendix C, providing TNB’s current public information on data-centre electricity demand, UHV tariff categorisation and Electricity Supply Agreements. https://www.tnb.com.my/assets/energy_watch/AGM_Presentation_2026_Appendix_C.pdf
• Tenaga Nasional Berhad (TNB) – Integrated Annual Report 2025, including discussion of TNB’s transmission and distribution investment, grid expansion and the growing data-centre electricity-demand pipeline. https://www.tnb.com.my/assets/annual_report/TNB_IAR_2025.pdf

Citation

Malaysia Data Centre Observatory (MDCO). E07.02 Understanding Electricity Tariffs in Malaysia. MDCO Explain Series.

MDCO Note

This article forms part of the Malaysia Data Centre Observatory (MDCO) Explain Series, which aims to improve public understanding of data centre development through evidence-based, accessible and balanced analysis. It is intended for educational and informational purposes only and does not constitute legal, engineering, planning, environmental or professional advice.

Malaysia’s rapidly evolving data centre ecosystem includes facilities developed, owned or operated by organisations such as AirTrunk, Amazon Web Services (AWS), Bridge Data Centres, DayOne, EdgeConneX, Google, K2 Data Centres, Microsoft, NTT Global Data Centers, Princeton Digital Group (PDG), ST Telemedia Global Data Centres (STT GDC), STACK Infrastructure, Vantage Data Centers, YTL Data Centre Park and many others. MDCO is independent of these organisations, as well as governments, regulators, utilities and advocacy groups. Its role is to facilitate transparency, structured understanding and equal access to information by presenting publicly verifiable evidence, relevant context and multiple stakeholder perspectives. MDCO does not endorse, oppose or advocate for any particular organisation, project or policy position.