A10 — Who Pays for the Electricity Behind Malaysia’s Data Centres
Key Takeaways
- A10 — From “Who Pays?” to a Cost-and-Payment Framework establishes a framework for examining who pays for, and ultimately bears the cost of, the electricity system serving a large data centre.
- Supplying a data centre involves more than its physical connection: generation, transmission, substations, connection infrastructure and network reinforcement may all contribute to the cost.
- Payments arise both before and after energisation, including Connection Charges and other applicable connection-stage payments, followed by Energy, Capacity, Network and Retail Charges, AFA and other applicable charges.
- For high-voltage connections, the 1st Principle approach considers the cost of providing the required connection and the amount reasonably recoverable from the customer, with the Connection Charge reflecting any shortfall.
- Capacity Charge is understood by MDCO to be primarily associated with the generation capacity required to meet demand, while Network Charge relates primarily to the transmission and distribution network delivering the electricity.
- What a data centre pays is not necessarily the same as the full cost of the electricity system serving it. Assets may be existing, dedicated, shared or reinforced, with costs recovered through different mechanisms.
- Under IBR, approved regulated electricity-system costs are recovered through the wider tariff framework. Determining who ultimately bears a particular cost therefore requires examining the asset, its ownership, financing and cost-recovery mechanism.
- This article establishes a 300 MW Iskandar Puteri reference case; the subsequent A10.xx series will follow the money and assets, replacing assumptions with documented costs, allocation rules and calculations.
From “Who Pays?” to a Cost-and-Payment Framework
The question of who pays for the electricity behind a large data centre cannot be answered simply by looking at its electricity bill or connection charge. The data centre interacts with the electricity system through three related but distinct dimensions: the physical infrastructure required to supply it, the payments it makes, and the wider mechanisms through which electricity-system costs are recovered.
The physical electricity system
Supplying a large data centre may involve generation facilities, transmission networks, transmission substations, distribution or sub-transmission infrastructure where applicable, and connection facilities. It may also require transformers, transmission lines or cables, land and rights of way, protection and control systems, metering, and network reinforcement. →E07 has already explained these components and their roles; they are identified here only to establish the cost framework for this Analyse series.
Payments made by the data centre
Payments arise at different stages. Before energisation, these may include connection charges, additional cable charges, special-request or third-party requirements, deposits and other applicable pre-supply payments, together with land or building obligations where applicable. TNB’s current connection-charge framework also identifies specific charges for high-voltage customers, including connection charges, Fast Track premiums and, where applicable, other charges.
After energisation, the data centre pays for electricity under the applicable tariff framework. This may include energy, demand or capacity, network and retail/service components, together with the Automatic Fuel Adjustment (AFA) and other applicable adjustments. The electricity bill may also include the Renewable Energy Fund (RE Fund, or Kumpulan Wang Tenaga Boleh Baharu — KWTBB), collected through a surcharge on electricity consumption.
Revenue and cost recovery within the electricity system
The third dimension is how these payments relate to wider system cost recovery. Under IBR, the base tariff incorporates regulated CAPEX and OPEX for transmission, distribution, system operation and retail, together with returns on regulated assets and power-purchase costs. AFA adjusts generation-related costs as they change.
A payment made by the data centre is therefore not necessarily the same thing as the ultimate cost borne by the data centre.
MDCO Insight: Understanding what a data centre pays is different from understanding who ultimately bears the cost of the electricity system that serves it.
Establishing a Common Case Study
To examine who pays for the electricity system behind a large data centre, this Analyse series needs a common reference case. The purpose is not to represent an actual project or predict its eventual connection arrangement, but to establish a transparent set of assumptions that can be used consistently in subsequent cost analyses.
The Illustrative Generation Centre
The first assumption is an Illustrative Generation Centre: a notional point representing the geographical distribution of electricity generation in Peninsular Malaysia. It is not intended to identify the actual source of electricity consumed by the data centre. Peninsular Malaysia operates an interconnected transmission grid, with generation and demand balanced through system operation rather than electricity travelling along a single predetermined route.
The reference point therefore provides only a practical basis for estimating a representative transmission distance and the infrastructure associated with supplying the load.
The Reference Data Centre
The reference customer will be a hypothetical 300 MW data centre in Iskandar Puteri, Johor, operating as a large, continuous-load customer. For the purpose of the initial analysis, the centre will be assumed to require a high-voltage connection and will be assessed against the electricity-system and regulatory framework applicable during the reference period.
TNB’s current connection guidelines indicate that maximum demands of 100,000 kVA and above are normally supplied at 275 kV, although TNB may determine an alternative arrangement following consideration of system capability, location, economic factors and system security.
Electricity-System Components to Be Costed
The reference case will identify the principal components that may contribute to the cost of supplying the data centre:
Generation: representative generation capacity required to support the additional load.
Existing transmission: representative transmission distance, available capacity and the proportion attributable to the reference load.
Existing PMUs and substations: the relevant substations and their shared capacity.
New connection infrastructure: new PMU or substation facilities, tapping arrangements, dedicated transmission lines or cables, and the customer landing arrangement.
Protection, control and metering: protection modifications, communications and control systems, and metering facilities.
Land: existing system land, new or dedicated land, and relevant wayleaves or rights of way.
Reinforcement: transmission or substation upgrades, additional equipment and other network reinforcement required because of the new load.
These components will then be examined not simply by their physical function, but by how their costs are allocated.
Analytical Classification
Each component will subsequently be classified as Existing, New or Reinforced, and as Dedicated or Shared. This provides the basic framework for determining who initially provides or pays for each asset, who owns it, and how its cost may ultimately be recovered.
MDCO Insight: A common reference case allows different electricity-system costs to be examined consistently without assuming that the hypothetical data centre follows a single physical electricity path.
What Is Paid Before the Data Centre Is Energised?
Before a large data centre can begin consuming electricity, financial commitments arise from the process of establishing its electricity supply. These payments are not necessarily limited to the physical connection itself. They may reflect the infrastructure required, the characteristics of the proposed supply arrangement, and specific requirements associated with the project.
Connection Charge
TNB describes the Connection Charge as an upfront payment for new electricity supply infrastructure or the upgrading of existing infrastructure to accommodate additional power supply. For high-voltage consumers, the current framework provides for a Connection Charge based on a 1st Principle calculation or, under specified circumstances, a Refundable Connection Charge (RCC). Under the 1st Principle approach, the charge is based on the cost of the infrastructure required to serve the customer, taking into account the expected revenue from that customer over the supply period. In simple terms, TNB considers the cost of providing the required connection and how much of that cost can reasonably be recovered from the customer through the expected electricity supply, with the Connection Charge reflecting any resulting shortfall.
This leads to the first important analytical question for A10:
What infrastructure does the Connection Charge actually represent?
The answer cannot be determined from the charge alone; the underlying project cost and allocation methodology must also be examined.
Dedicated versus Shared Infrastructure
The distinction between dedicated and shared infrastructure is particularly important. TNB states that where a supply is fully dedicated to a consumer, the full project cost may form the baseline for determining the Connection Charge. Where the supply is non-dedicated or forms part of TNB’s transmission network, the project cost may instead be apportioned according to the consumer’s requested Maximum Demand and the carrying capacity of the transmission line.
Thus, two data centres with similar electricity demands could potentially face different connection-cost outcomes if the infrastructure required to serve them has different characteristics.
Other Connection-Stage Charges
The Connection Charge is not necessarily the only financial commitment. TNB’s current framework identifies additional charges for high-voltage consumers, including a premium where a project is implemented under Fast Track Supply, Liquidated Delay Damages under the applicable arrangements, and charges arising from special requests or third-party requirements. Additional cable charges may also apply under relevant supply arrangements.
There may also be obligations concerning infrastructure, substation land or buildings. TNB’s supply-application framework provides for circumstances in which land, a substation building or related facilities may be transferred or leased to TNB at a nominal price, subject to the applicable requirements.
What the Data Centre Does Not Necessarily Pay Directly
The existence of a large electricity connection does not mean that the data centre directly finances every asset involved in supplying it. Some infrastructure may already exist as part of the wider network; other facilities may be developed as shared network assets or reinforced for broader system requirements.
A central task of this Analyse series is therefore to distinguish between infrastructure specifically financed by the data centre customer and infrastructure whose costs are recovered through the wider electricity system.
MDCO Insight: The connection payment shows what the data centre is required to pay for its supply; it does not, by itself, show the full cost of the electricity infrastructure serving it.
What Is Paid After the Data Centre Is Energised?
Once the data centre is connected and energised, the nature of its financial relationship with the electricity system changes. The focus moves from establishing the physical connection to paying for the continuing supply of electricity and, where applicable, meeting other obligations associated with the connection.
Electricity Tariff
The data centre becomes an electricity customer and is billed under the applicable tariff framework. The tariff is not simply a charge for the electricity physically consumed. It incorporates different components reflecting the costs and regulated revenue requirements of the electricity supply system. →E07.02 has examined the structure of these tariffs; this Analyse series is concerned instead with how those payments relate to the wider cost of supplying a very large customer.
Under the current IBR framework, electricity tariffs in Peninsular Malaysia comprise the base tariff and the Automatic Fuel Adjustment (AFA) mechanism.
Energy Charge
The Energy Charge is the component based on the amount of electricity consumed, measured in kilowatt-hours (kWh). For a data centre operating continuously, annual electricity consumption can be substantial even where its maximum demand remains relatively stable.
The resulting Energy Charge therefore reflects not only the size of the facility, but also how much electricity it consumes and how continuously it operates.
Capacity Charge
A 300 MW data centre represents a substantial demand on the electricity system. MDCO understands the Capacity Charge to be primarily associated with the generation capacity required to meet the customer’s Maximum Demand—in other words, the capacity that must be available to generate sufficient power when required. For a continuous-load facility, this is distinct from the amount of electricity actually consumed, which is reflected in the Energy Charge.
Network Charge
MDCO understands the Network Charge to be primarily associated with the transmission and distribution network required to deliver electricity to the customer. It is based on Maximum Demand and therefore reflects the network capacity required to serve the data centre, rather than simply the amount of electricity it consumes.
Retail Charge
The Retail Charge relates to the customer-facing function of electricity supply, rather than the generation or network infrastructure itself. MDCO understands this charge to cover the costs associated with providing and administering the retail electricity service, such as customer, billing and related retail functions.
Automatic Fuel Adjustment
The Automatic Fuel Adjustment (AFA) provides for monthly adjustments to generation-related costs. It therefore links changes in the cost of electricity generation to the amounts ultimately reflected in customers’ electricity bills.
Connected Load Charge
The Connected Load Charge (CLC) applies to applicable Medium Voltage and High Voltage consumers where their actual Maximum Demand falls below the applicable Reference Maximum Demand (RMD). TNB describes CLC as a mechanism to discourage consumers from over-declaring their load requirements. It is calculated on a monthly basis for the applicable period.
Project Minimum Monthly Charge
The Project Minimum Monthly Charge (PMMC) is a fixed monthly charge applicable to High Voltage consumers who pay a Connection Charge. TNB defines it as 2% of the net capital cost of the supply project, calculated as the Project Cost less the Connection Charge, and applies it for up to five years from the commissioning of the High Voltage supply.
MDCO Insight: After energisation, the data centre’s payments extend beyond energy consumed to include capacity, network, retail and other applicable charges linked to its electricity supply.
Where Does the Money Come From?
The previous sections have identified what a large data centre may pay. The next question is more fundamental: where does the money that supports the wider electricity system come from, and how are the system’s costs ultimately recovered?
The Regulated Electricity System
Malaysia’s electricity system involves several distinct functions and participants. Under the Incentive-Based Regulation (IBR) framework, the regulated electricity activities include transmission, distribution, Grid System Operation (GSO), Single Buyer (SB) and Retail. The base tariff incorporates the CAPEX and OPEX of these activities, together with a fair return on their regulated asset bases and power-purchase costs charged by generators to the Single Buyer.
This means that the money paid by electricity customers forms part of a wider regulated system of cost recovery rather than representing payment for a single physical asset.
How Existing Infrastructure Is Recovered
This raises an important question:
If a transmission line or PMU already exists when the data centre arrives, who paid for it?
The answer may involve infrastructure investment made before the data centre was established, connection payments from earlier customers, electricity customers generally through regulated tariffs, or other funding and development arrangements. Some infrastructure may also have been constructed to serve several customers or broader system requirements.
At this stage, A10 does not assume which mechanism applies to any particular asset. That must be established through the evidence and regulatory treatment of the asset concerned.
How New Infrastructure Is Recovered
A similar question arises when the 300 MW load requires new infrastructure or network reinforcement:
If the data centre requires an upgrade, who pays for it?
Part of the cost may be recovered through a connection charge, including an apportioned charge where infrastructure is shared. Other investment may form part of regulated network expenditure, with its costs recovered through the wider tariff framework. The distinction between these mechanisms is therefore central to the subsequent analysis. TNB’s connection-charge framework itself distinguishes project costs attributable to dedicated supply from those associated with non-dedicated or transmission-network arrangements.
The Effect of IBR
The key analytical question is therefore not simply:
Did the data centre pay for the upgrade?
It is also:
If the investment becomes part of regulated system costs, how is that cost subsequently recovered?
ST states that the IBR base tariff includes transmission and distribution CAPEX and OPEX and a fair return on the regulated asset base. IBR therefore provides a mechanism through which approved regulated costs can become part of the revenue requirement underlying electricity tariffs.
This does not mean that every investment is automatically recovered from all customers. The treatment, approval and allocation of individual investments require separate examination.
The System Before, During and After the Data Centre
The timing of an investment also matters.
Before: existing assets may already have been funded and incorporated into the wider electricity system.
When connecting: new or dedicated infrastructure may give rise to direct customer payments.
After connection: the data centre pays electricity tariffs and applicable charges.
As the network evolves: additional investment may be required as demand grows, with recovery potentially occurring through different mechanisms.
MDCO Insight: The question is not only who pays when infrastructure is built, but how its cost is recovered over the life of the electricity system.
From Framework to Detailed Analysis
The framework established in this article provides the basis for a series of more focused analyses. Rather than attempting to calculate the entire cost of supplying a 300 MW data centre in one article, the A10.xx Analyse series will examine individual payments, assets and cost-recovery mechanisms in turn.
Establishing the Reference Case
The first stream will establish the common case-study assumptions and costing methodology. →A10.01 — Common Case Study and Costing Methodology will define the reference data centre, illustrative generation centre, representative network configuration, capacity assumptions and methodology for estimating infrastructure costs.
Connection-Stage Payments
The second stream will examine what the data centre may pay to establish its electricity connection. It will distinguish between dedicated and shared infrastructure, examine the methodology used to determine Connection Charges, and assess the treatment of project costs under 1st Principle calculations and Refundable Connection Charges. Fast Track premiums and other applicable connection-stage charges will also be examined. TNB’s current framework provides separate treatment for these different circumstances.
Articles in this stream:
→A10.02 — Electricity Costs Behind Malaysia’s Data Centres – Establishing Unit Costs for the Connection Charge
(More articles will be included.)
Electricity-Bill Payments
The third stream will examine payments after energisation. Individual analyses will consider energy, capacity, network and retail components, together with the Automatic Fuel Adjustment (AFA). Connection-related charges that arise after commissioning, including the Connected Load Charge and Project Minimum Monthly Charge for applicable high-voltage customers, will also be examined separately.
Articles in this stream:
(More articles will be included.)
Infrastructure Cost Incidence
The fourth stream will examine the cost of the physical electricity system itself. Separate analyses will consider generation, existing transmission lines, existing PMUs, new PMUs, cables, land, protection and control systems, telecommunications and metering, and network reinforcement. The objective is to establish who provides, owns, finances and ultimately recovers the cost of each component.
Articles in this stream:
(More articles will be included.)
Generation and Wider System Costs
The fifth stream will examine generation and wider electricity-system costs, including IPP and PPA costs, fuel costs, fuel support or subsidies where applicable, generation capacity and other system-level costs. These analyses will also consider how such costs enter the wider regulated cost-recovery framework. The IBR framework provides the regulatory mechanism through which approved costs and returns are incorporated into tariff determination.
Together, these articles will progressively replace assumptions with documented costs, allocation rules and calculations.
The Observatory Perspective
The electricity system serving a large data centre extends well beyond the physical connection at its site. It includes generation, transmission, substations, connection infrastructure and the wider network required to maintain a reliable electricity supply.
A data centre may directly pay connection charges when establishing its supply and electricity charges once it is energised. At the same time, some of the infrastructure it uses may already exist, having been developed before the data centre arrived. Other infrastructure may be newly constructed specifically for the connection, shared with other customers, or developed as part of wider network reinforcement.
The costs of regulated electricity services are recovered through the regulated tariff framework, while generation-related costs are treated separately through mechanisms including the base tariff and AFA. Consumer contributions can also form part of the wider cost-recovery framework.
This means that the statement “the data centre pays for its electricity” does not, by itself, answer the broader question of who pays for the electricity system that serves it.
This article therefore establishes the framework. The subsequent A10.xx analyses will examine individual payments, assets and cost-recovery mechanisms, progressively replacing assumptions with documented costs, allocation rules and calculations.
MDCO Insight: The question is not simply how much electricity a data centre pays for, but how the cost of supplying that electricity is allocated across the 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). A10 — Who Pays for the Electricity Behind Malaysia’s Data Centres. MDCO Analyse Series.
MDCO Note
This article forms part of the Malaysia Data Centre Observatory (MDCO) Analyse Series, including the A10 and A10.xx series on the electricity costs and cost-recovery mechanisms associated with data centre development. The series aims to improve public understanding through evidence-based, accessible and balanced analysis. It is intended for educational and informational purposes only and does not constitute legal, engineering, financial, regulatory or professional advice.
The cost of supplying electricity to large data centres involves multiple disciplines and perspectives, including electrical engineering, energy economics, utility regulation, infrastructure planning, finance and public policy. MDCO does not advocate for or against any particular stakeholder, project, technology, tariff or regulatory position. Its role is to facilitate transparency, reduce information asymmetry and support informed discussion by examining how electricity infrastructure is provided, paid for and ultimately recovered through the electricity system, using publicly verifiable information and clearly stated assumptions.