Data Center Boom Poses Challenges to Clean Energy Transition in Asia

Data centers primarily rely on non-sustainable energy sources. Their capacity is expanding much faster than the growth rate of low-carbon energy, which could hinder the efforts of technology corporations and data center developers to achieve Net Zero carbon emissions.

The total capacity of data centers in the Asia-Pacific (APAC) region is projected to double by 2028, driven by the rapid adoption of artificial intelligence (AI) and cloud computing, according to a report by Moody’s Ratings.

However, this explosive growth will place additional strain on water resources—used for data center cooling—and slow down the clean energy transition across the region.

A data center in Zhongwei City, Ningxia Hui Autonomous Region, China. (Photo: Xinhua)

$564 Billion to Be Invested in New Data Centers Across Asia

A recent Moody’s report forecasts that massive investments—around US$564 billion—will raise the total capacity of APAC data centers to 24,800 MW by 2028, more than double today’s level.The APAC region is expected to account for about 30% of new global data center capacity over the next five years.

Moody’s explains that as AI-related products and services proliferate, the region will require significantly greater computing power.

Currently, more than 4,400 MW of data center capacity is under construction across key APAC markets, with 75% of that located in China, Japan, Australia, and India—most of which will come online by 2025.Emerging markets such as India, Indonesia, Malaysia, Thailand, and the Philippines are projected to experience capacity growth of 29–48% by 2025.

With a capacity of 973 MW, Singapore remains the largest data center hub in Southeast Asia, despite strict regulations mandating the annual use of a minimum share of renewable energy.Major global technology firms including Microsoft, Amazon, Alphabet, Oracle Corporation, Meta Platforms, Alibaba Group, and Tencent Holdings own and operate numerous data centers across APAC.

Another report from S&P Global Market Intelligence also notes that the AI software investment boom in APAC will further drive regional data center growth.

According to Melissa Incera, data and AI research analyst at S&P Global, the United States currently dominates the global generative AI market, accounting for around 63% of global revenue.However, she notes that the share of AI-generated service revenues in North America will gradually decline, while APAC’s share will grow due to strong investment momentum.

S&P Global projects that APAC will experience the fastest global revenue growth in generative AI software by 2028, with its market share rising from 14% to 20%, while North America’s share falls from 63% to 55% during the same period.

Pressure on Water Resources and the Net Zero Roadmap

Moody’s warns that the wave of new data center construction across APAC could exacerbate challenges in water management and clean energy transition, posing significant hurdles for operators and new investors, according to Nidhi Dhruv, Vice President at Moody’s.

“Data centers primarily rely on non-sustainable energy sources. Their capacity is growing much faster than the development of low-carbon energy. This could hinder efforts by technology companies and data center developers to reach Net Zero carbon emissions,” Dhruv wrote in the report.

According to the International Energy Agency (IEA), surging demand—driven by the proliferation of AI services such as OpenAI’s ChatGPT—is expected to more than double global data center electricity consumption between 2022 and 2026.This will require massive amounts of energy to power and cool the servers.

However, most APAC countries still rely heavily on fossil fuels for electricity generation.China, the region’s largest data center market with 3,956 MW of capacity, remains highly dependent on coal, which accounted for nearly two-thirds of the nation’s power generation last year.

Worsening water scarcity in several Asian markets could also disrupt operations, as water is essential for cooling and maintaining humidity levels in data centers.

According to the Hong Kong–based nonprofit China Water Risk, China’s data centers consume around 1.3 billion cubic meters of water annually—enough to supply 26 million people. With continued expansion, this figure could exceed 3 billion cubic meters by 2030, surpassing South Korea’s national water demand.

To meet climate commitments, APAC governments have begun regulating the environmental impacts of data centers.Last week, China announced a sustainable data center development action plan aimed at improving energy efficiency and increasing the share of renewable energy use.

According to Moody’s, the rapid growth of data centers will also drive higher electricity demand, requiring grid capacity upgrades to support it.

Moody’s further recommends that data center developers and tenants, especially those in Net Zero–committed markets, sign long-term power purchase agreements (PPAs) for renewable energy to mitigate risks and ensure alignment with the region’s low-carbon transition goals.

Chánh Tài (SCMP, Tech Node)

Source: KTSG Online