A10.01 — Electricity Costs Behind Malaysia’s Data Centres – Case Study & Costing Methodology
Key Takeaways
- A10.01 — Electricity Costs Behind Malaysia’s Data Centres – Case Study & Costing Methodology establishes a common 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, connection infrastructure and network reinforcement may all contribute to the cost.
- Costs may arise both at connection and during operation, through Connection Charges, electricity charges and other applicable cost-recovery mechanisms.
- What a data centre pays is not necessarily the full cost of the electricity system serving it. Assets may be existing, new or reinforced, and dedicated or shared.
- Initial payment, asset ownership and ultimate cost recovery are distinct questions and may involve different parties or mechanisms.
- Under IBR, approved regulated electricity-system costs are recovered through the wider tariff framework. The ultimate allocation of a particular cost must therefore be examined asset by asset.
- This article establishes a 300 MW Iskandar Puteri reference case, an Illustrative Generation Centre, the system boundary, costing principles and Cost-and-Payment Matrix for the subsequent A10.xx series.
Parent article: A10 — Who Pays for the Electricity Behind Malaysia’s Data Centres?
Why A10 Needs a Common Case Study
The A10.xx series will examine different parts of the electricity system and different mechanisms through which their costs may be paid or recovered. To compare these costs consistently, however, the analysis first needs a common reference point.
A question such as:
How much does the electricity system cost to supply a 300 MW data centre?
cannot be answered meaningfully without first defining the characteristics of the customer and the system being examined. The analysis needs to establish the data centre’s size and operating profile, its location, the assumed electricity-system configuration, the infrastructure included within the analysis, the period over which costs are assessed, the method used to allocate shared infrastructure, and what is meant by “the cost of supplying” the data centre.
This article establishes a common case study that subsequent articles can use consistently. The reference case provides a controlled set of assumptions against which individual infrastructure costs, connection payments, electricity charges and wider cost-recovery mechanisms can be examined.
It is important, however, to distinguish an illustrative analytical case from an actual project. The case study is illustrative, not predictive. It is not intended to represent the actual connection arrangement of an Iskandar Puteri data centre, identify the actual source of its electricity, reproduce an actual transmission route, estimate an actual TNB project cost, or determine an actual Connection Charge.
TNB’s actual supply arrangement is determined through its applicable connection process and system studies, taking account of factors including declared demand, location, economic considerations and system security.
The reference case therefore provides a transparent basis for analysis, rather than a substitute for project-specific engineering and commercial information.
MDCO Insight: A common case study allows MDCO to compare electricity-system costs consistently without presenting an analytical assumption as the reality of a particular data-centre project.
The Reference Data Centre
To apply the costing framework consistently, this article uses a hypothetical large data centre as its reference customer. The reference case is deliberately defined in terms that can be carried into subsequent analyses in this series without implying that it represents any particular operating project.
Location
The reference data centre is located in Iskandar Puteri, Johor. The location provides a realistic Malaysian case-study context because Iskandar Puteri has become an established area for data-centre development. Recent projects include data-centre campuses by ST Telemedia Global Data Centres, TM and Nxera, and AirTrunk, among others.
For MDCO, the location also provides continuity with existing research and creates an opportunity, where appropriate, to incorporate documented regional electricity infrastructure into later analysis. The reference location should not, however, be interpreted as identifying the actual electricity connection or transmission route of any existing facility.
Load
The reference customer has a 300 MW Maximum Demand (MD). This represents the reference electrical demand used in the analysis, rather than necessarily the IT equipment capacity.
This distinction is important. A data centre may be described in terms of IT load, while its overall facility demand includes cooling, electrical losses, lighting, pumps and other supporting systems. Connected Load, Maximum Demand and contracted or declared demand are also different concepts and should not be treated as interchangeable.
Operating Profile
The reference facility is assumed to operate continuously, at high utilisation, with relatively stable demand. It therefore represents a large, persistent electricity load. Annual electricity consumption will not be calculated at this stage; that parameter can be established in the relevant analysis in the future article of this series.
Supply Voltage
For the reference case, MDCO assumes a 275 kV supply. TNB’s current guidelines identify 275 kV as the minimum supply scheme for individual consumers with MD of 100,000 kVA and above, while allowing TNB to determine alternative arrangements based on location, economic and system-security considerations and the outcome of system studies.
MDCO Insight: The reference data centre defines a consistent analytical customer without assuming that its characteristics or electricity connection represent any actual project.
Defining the Illustrative Generation Centre
Once the reference data centre has been defined, we need a consistent way to represent the generation side of the electricity system. This is necessary because transmission-related costs depend, among other factors, on the infrastructure and distance involved in moving electricity across the network.
For this purpose, MDCO introduces the concept of an Illustrative Generation Centre.
Why a reference point is necessary
Peninsular Malaysia operates through an interconnected National Grid comprising 132 kV, 275 kV and 500 kV transmission networks. Generation facilities are distributed geographically across the peninsula rather than concentrated at a single location.
Consequently, electricity supplied to a data centre does not literally travel from one geographical “source centre” to that customer along a single dedicated transmission route. Actual electricity flows depend on the interconnected network, generation dispatch, demand and system conditions.
Nevertheless, a reference point is useful when the articles need to estimate a representative transmission distance for economic costing.
How It Will Be Established
MDCO will establish the Illustrative Generation Centre by considering the geographical distribution of major power-generation facilities in Peninsular Malaysia.
The major generation fleet is geographically dispersed. Among the larger facilities are Manjung in Perak, Kapar in Selangor, Jimah in Negeri Sembilan, and Tanjung Bin in Johor, together with significant generation facilities in other parts of the peninsula. TNB and the Energy Commission identify these and other major plants as part of the generation system serving Peninsular Malaysia.
Taken together, these major facilities indicate a broad generation distribution extending across the peninsula rather than a single geographical source. For the purposes of this analysis, MDCO therefore selects Seremban, Negeri Sembilan, as the Illustrative Generation Centre.
Seremban is not presented as the mathematical centre of generation, an actual dispatch location or the physical source of electricity supplied to Iskandar Puteri. It is simply a convenient geographical reference point located broadly within the distribution of major generation facilities.
The purpose is to provide a consistent starting point from which an illustrative transmission distance can be estimated in subsequent calculations in this series. The choice is therefore intended to provide transparency and consistency, rather than geographical precision.
Actual electricity flows depend on generation dispatch, demand and network conditions. Determining those flows would require a project-specific power-flow study and is outside the purpose of this illustrative methodology.
What it is — and is not
The Illustrative Generation Centre is a transparent reference point, a basis for estimating representative transmission distance, and a common assumption that can be applied consistently across subsequent in this series.
It is not an actual dispatch point, an actual power-flow origin, or a claim that electricity travels from that point to the data centre in Iskandar Puteri. Nor is it a substitute for project-specific load-flow or system studies.
This distinction is important because physical electricity flow and economic allocation of infrastructure cost are different questions. We must be able to analyse the latter without incorrectly representing it as the former.
MDCO Insight: A reference generation point makes transmission costs comparable while recognising that electricity flows through an interconnected grid, not along a single source-to-customer route.
Defining the Electricity-System Boundary
Before any cost can be estimated, this article must establish what is considered part of the electricity system serving the reference data centre. Without a defined boundary, the analysis could expand indefinitely—from the data centre’s immediate connection to the entire generation and transmission system.
For the purpose of the articles in this series, MDCO divides the reference electricity system into several layers.
Generation
The boundary includes representative generating capacity and the relevant generation infrastructure needed to examine the cost of producing and supplying electricity to the reference customer. This may include generating plant, associated electrical infrastructure and relevant generation-related capital and operating costs.
The inclusion of generation at this stage does not mean that MDCO is assigning a specific generation plant to the data centre or determining its cost. Those questions will be examined separately.
Transmission
The transmission boundary includes the infrastructure through which electricity is transported across the interconnected grid. This may include transmission lines, towers and other structures, conductors, transmission equipment, associated substations or PMUs, protection and control systems, and telecommunications or other communications infrastructure. TNB’s National Grid comprises 132 kV, 275 kV and 500 kV transmission networks across Peninsular Malaysia.
Connection Infrastructure
The boundary also includes infrastructure specifically associated with connecting the reference data centre to the electricity system. Depending on the eventual connection arrangement, this may include a new PMU or substation, tapping arrangements, dedicated transmission connections, cables, transformers, protection systems, metering, control and communications.
TNB’s connection guidelines recognise that supply arrangements and network facilities depend on demand, location and system studies, and that large-demand connections may require PMU and associated network infrastructure.
Land
Land is included where it is directly required for electricity infrastructure within the defined boundary. This may include substation land, transmission-line rights-of-way or wayleaves, and land required for new dedicated infrastructure. TNB’s guidelines specifically recognise land and wayleave requirements for PMUs and transmission lines.
Network Reinforcement
Finally, the boundary includes network reinforcement that may be triggered by the additional load. Examples include additional transformers or transmission circuits, switchgear, protection modifications, substation expansion and other upgrades required to maintain an appropriate system capability or security of supply.
Customer-Side Facilities
The boundary stops at an appropriately defined customer–network interface. Electrical facilities within the data centre that form part of the customer’s own installation—rather than the electricity network serving the customer—will generally be excluded.
This distinction will be applied consistently throughout the series to avoid both double counting and the unintended expansion of the analysis into the entire electrical installation of the data centre.
MDCO Insight: Defining the boundary first allows MDCO to identify relevant costs without confusing the electricity network serving a data centre with the data centre’s own electrical installation.
Existing, New and Reinforced Infrastructure
Every component within the analytical boundary will be placed into one of three categories: existing, new or reinforced.
Existing Infrastructure
Existing infrastructure is infrastructure that is already available before the reference data centre connects to the electricity system. Examples include an existing transmission line, an existing PMU or existing transformer capacity.
The data centre may depend on this infrastructure to receive its electricity supply, but its use does not by itself establish that the data centre financed the infrastructure. The historical investment and subsequent cost recovery therefore remain separate questions for analysis.
New Infrastructure
New infrastructure is infrastructure constructed to establish or accommodate the new electricity supply. This may include a new PMU, connection cable, transformer or transmission connection.
TNB’s Connection Charge framework explicitly covers new electricity supply infrastructure as well as upgrades to existing infrastructure required for additional power supply.
However, identifying an asset as new does not automatically mean that the data centre bears its entire economic cost. The applicable connection arrangement, cost-sharing mechanism, ownership and subsequent cost recovery must be examined separately.
Reinforced Infrastructure
Reinforced infrastructure is an existing asset that must be upgraded because of the additional load. Examples include transformer replacement or augmentation, an additional transmission circuit, protection upgrades or substation expansion.
This distinction matters because an asset can be used by the data centre without having been built for the data centre, while an asset built in response to the data centre’s demand may serve purposes beyond that individual customer.
Accordingly, the existing/new/reinforced classification will be applied consistently throughout the series before the question of payment or ultimate cost allocation is addressed.
MDCO Insight: Infrastructure use, infrastructure construction and infrastructure cost responsibility are different questions.
Dedicated and Shared Infrastructure
The second major classification in the series considers whether an infrastructure asset is dedicated to the reference data centre or shared with other users. This classification is separate from whether an asset is existing, new or reinforced.
Dedicated Infrastructure
Dedicated infrastructure is infrastructure designed or provided to serve only the reference data centre. Depending on the connection arrangement, this may include a dedicated connection cable, dedicated substation equipment, a dedicated feeder or other customer-specific facilities.
Where infrastructure is fully dedicated, its relationship with the reference customer is relatively direct. However, even in such cases, the analysis must distinguish between the cost of constructing the asset, the amount initially paid by the customer, ownership of the asset and any subsequent cost recovery.
Shared Infrastructure
Shared infrastructure is infrastructure that can serve the reference data centre together with other existing customers, future customers or the wider electricity system. Examples may include transmission lines, PMUs, transformers and network reinforcement.
TNB’s current Connection Charge methodology explicitly distinguishes between a supply that is fully dedicated to a consumer and infrastructure that is non-dedicated or forms part of TNB’s transmission network. For a fully dedicated supply, the full project cost can form the baseline for the Connection Charge calculation. For non-dedicated or transmission-network infrastructure, the project cost may instead be apportioned according to the consumer’s requested Maximum Demand and the carrying capacity of the transmission line.
This distinction is important because shared use does not mean equal cost sharing. An asset may serve several customers while the applicable cost allocation reflects factors such as demand, capacity, network function, connection arrangements or regulatory treatment.
The series will therefore not assume that costs are divided equally simply because an asset is shared. The applicable allocation methodology must be established from the relevant connection rules, engineering characteristics, cost information and regulatory framework.
Together with the existing/new/reinforced classification, the dedicated/shared classification provides the series with two complementary ways of describing each infrastructure asset before determining who initially pays and who ultimately bears or recovers its cost.
MDCO Insight: An asset may be shared without its cost being shared equally.
Establishing the Costing Units
Before the cost of the reference electricity system can be estimated, the series must establish consistent costing units. Different infrastructure assets have different physical characteristics and cost drivers, so applying a single generic cost factor to the entire system would risk producing misleading results.
Potential costing units may include RM per MW, RM per MVA, RM per kilometre of transmission line, RM per PMU, RM per transformer, RM per circuit, RM per hectare of land, RM per kW of Maximum Demand and RM per kWh. Where costs occur over different periods, the analysis may also use annualised RM or the present value of future costs.
The appropriate unit will depend on what is being measured. For example, a transmission line should not simply be assigned a cost per MW. Its cost may depend on voltage level, conductor configuration, number of circuits, terrain, tower type, route length, land or right-of-way requirements and construction conditions. Similarly, the cost of a PMU may depend on its voltage level, electrical configuration, equipment requirements, site conditions and associated civil works.
The costing methodology must therefore distinguish between the physical quantity of an asset and the cost drivers that determine its value. A kilometre of transmission line, for example, is not necessarily equivalent to another kilometre constructed under different voltage, terrain or configuration conditions.
Where appropriate, engineering cost models may therefore combine several variables rather than relying on a single unit rate. Documented project costs, published benchmarks and engineering estimates can then be used to establish reasonable ranges.
The objective is not to find one universal RM/MW factor, but to develop reasonable, transparent and reproducible cost models for each major infrastructure category.
MDCO Insight: Different electricity assets have different cost drivers; credible analysis therefore requires asset-specific costing models rather than a single generic RM/MW assumption.
Establishing the Cost Attribution Method
Once each infrastructure asset has been identified and its appropriate costing unit established, the analysis must determine how its cost is attributed. This requires more than asking who paid for the asset.
For every significant asset or cost component, theanalysis will ask four separate questions.
Who provides the asset?
The first question is who provides or arranges the asset. Depending on the connection and project arrangement, this could be TNB, the data-centre customer, a developer, a contractor or another party.
The provider may design, procure, construct or arrange the infrastructure, but this does not necessarily establish who ultimately finances or owns it.
Who initially pays?
The second question identifies the direct financial payer. This is the party that initially bears the expenditure, whether through a direct construction payment, a Connection Charge, a development contribution or another mechanism.
For example, TNB’s current Connection Charge framework provides for upfront charges associated with new supply infrastructure or upgrades to existing infrastructure.
Who owns the asset?
The third question is who owns the infrastructure after it has been constructed or transferred. Ownership may differ from the party that initially paid for the asset. This distinction is particularly important where customer contributions are made towards infrastructure that subsequently forms part of a regulated electricity network.
Who ultimately recovers the cost?
The fourth question is the most important: how is the cost ultimately recovered?
Recovery may occur through a Connection Charge, electricity tariffs, regulated revenue, contributions from future customers, development contributions or other mechanisms. Under the IBR framework, regulated electricity tariffs recover approved costs associated with regulated services, while customer contributions can form part of the broader cost-recovery framework.
This four-part framework prevents a common analytical error:
payer = owner = revenue recipient = ultimate cost bearer
These four parties or roles can be different. The analysis will therefore trace each significant cost through all four stages before drawing conclusions about who ultimately bears or recovers it.
MDCO Insight: Following the money requires separating who provides, pays, owns and ultimately recovers the cost of each electricity-system asset.
Cost Recovery and the IBR Framework
The physical cost of an electricity asset does not, by itself, determine how that cost is ultimately recovered. For the analysis, the next step is therefore to connect the engineering cost model with Malaysia’s regulatory framework for electricity tariffs.
Under the Incentive-Based Regulation (IBR) framework, the base tariff reflects the efficient cost of supplying electricity and includes CAPEX and OPEX associated with transmission, distribution, Grid System Operation (GSO), Single Buyer and Customer Service (Retail), together with a fair return on the relevant regulated asset base. The base tariff also incorporates power-purchase costs charged by generators to the Single Buyer. The Automatic Fuel Adjustment (AFA) provides a separate mechanism for adjusting generation-related charges for changes in fuel prices, PPA and SLA costs, renewable-energy displaced costs and other generation costs.
Accordingly, a future analysis must distinguish between several stages and mechanisms:
Project cost
→ Connection Charge
→ regulated investment
→ tariff recovery
→ generation-related cost
→ other cost-recovery mechanisms
These stages should not be treated as interchangeable. The 2025 IBR guidelines state that costs of regulated services are recovered through regulated tariffs, while generation costs are separately regulated and treated as pass-through costs. They also recognise consumer contributions as part of the revenue-recovery framework for regulated services.
This article therefore does not assume that an asset entering the regulated framework means that all electricity customers automatically bear an equal share of its cost. The applicable regulatory treatment, allocation methodology and contribution must be examined for each asset.
IBR is consequently established here as the regulatory framework within which subsequent cost-recovery questions will be examined.
MDCO Insight: IBR provides the framework for cost recovery, but the ultimate allocation of each data-centre-related cost must be established asset by asset.
The Cost-and-Payment Matrix
The methodology established in this article needs a practical tool to ensure that each cost is examined consistently. MDCO therefore introduces the Cost-and-Payment Matrix as the principal analytical tool for the series.
Each significant electricity-system asset or cost item will be recorded against a common set of analytical fields. These fields are designed to follow the cost from the physical asset through to its eventual recovery:
| Analytical field | Purpose |
|---|---|
| Asset/cost | What is being analysed? |
| Existing/New/Reinforced | What is its infrastructure status? |
| Dedicated/Shared | Who uses the asset? |
| Estimated cost | What does the asset or service cost? |
| Initial payer | Who pays for it initially? |
| Asset owner | Who owns the asset? |
| Payment mechanism | How is the initial payment made? |
| Cost-recovery mechanism | How is the cost ultimately recovered? |
| Ultimate cost bearer | Who ultimately bears or funds the cost? |
| Evidence | What information supports the conclusion? |
| Confidence | How certain is the assessment? |
The matrix is deliberately structured to prevent different concepts from being conflated. In particular, the initial payer, asset owner and ultimate cost bearer may be different parties.
Each article in this series can therefore examine a particular asset, cost category or payment mechanism while remaining consistent with the same 300 MW reference case and the classifications established in this articlr.
The matrix will also make assumptions, evidence gaps and areas of uncertainty visible. Where the available information does not permit a definitive conclusion, the analysis will identify the limitation rather than infer an allocation that cannot be demonstrated.
MDCO Insight: The Cost-and-Payment Matrix provides a consistent trail from asset to cost, payment, ownership and ultimate cost recovery.
What Is — and Is Not — Established Here
This articlr establishes the methodological foundation for the series. It defines a 300 MW reference customer in Iskandar Puteri, an Illustrative Generation Centre, and the electricity-system boundary within which costs will be examined. It also establishes the existing/new/reinforced and dedicated/shared infrastructure classifications, the costing principles, the cost-attribution framework and the Cost-and-Payment Matrix used to trace costs through payment, ownership and recovery.
These definitions are analytical assumptions, not findings about any particular data-centre project.
It does not establish an actual TNB connection design, transmission route, project cost, Connection Charge or tariff payment. Nor does it determine the actual generation dispatch serving a data centre or the actual cost ultimately borne by any particular party.
Those questions require project-specific information, engineering analysis, regulatory documentation and cost evidence. The subsequent analyses will progressively examine each component of the electricity system and its associated payment and cost-recovery mechanisms.
MDCO Insight: This articlr establishes the analytical framework—not the answer—allowing subsequent studies to determine costs from evidence rather than assumption.
The Observatory Perspective
A large data centre does not receive electricity from a single asset. It connects to an electricity system comprising generation, transmission networks, substations, connection infrastructure and, where necessary, network reinforcement.
Some of this infrastructure may already exist; some may be built for the new connection; and some may be shared with other users. The financial relationship is equally layered. A data centre may make connection-related payments before energisation and subsequently pay charges for energy, capacity, network and retail services.
But what the data centre pays is not necessarily the same as the full cost of the electricity system serving it.
An asset may be initially paid for by one party, owned by another and recovered through a different mechanism over time. Shared infrastructure may also provide capacity beyond the requirements of the original customer and become part of the wider regulated system.
This is why determining “who pays?” requires more than examining a connection charge or electricity bill. It requires following each significant cost from the physical asset through its payment, ownership and eventual recovery.
This articlr establishes the framework for doing this. The subsequent articles in the series will apply that framework to individual infrastructure components, costs and payment mechanisms, progressively replacing assumptions with documented evidence and calculations.
MDCO Insight: Understanding who pays for electricity infrastructure requires following each cost from the physical asset through payment, ownership and eventual recovery.
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). A10.01 — Electricity Costs Behind Malaysia’s Data Centres – Case Study & Costing Methodology. 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.