Policy drivers

Comprehensive policies are vital to enable data centre decarbonisation in ASEAN

ASEAN’s data centre industry needs a wider range of corporate renewables procurement options and stronger policy support to ensure reliable, sustainable growth aligned with energy transition goals.

Creating a data centre that meets low-carbon requirements remains a challenge in ASEAN. The ASEAN Centre for Energy and Huawei Digital Power have identified the technical, institutional and digital transformations needed to support this growth, along with several recommendations, including enabling policies, public-private partnerships, harmonised regional standards, and skills development, among others. Complementing this, we analyse procurement options and national frameworks in more detail to provide a good reference for market players.

Corporate renewable procurement options are available, but not widely accessible in some countries

Several procurement mechanisms are introduced in the five focus countries, targeting corporate customers with renewable commitments. These mechanisms offer solutions for data centres to source renewables. However, some limitations can influence companies’ decisions on which mechanism suits their needs and preferences.

Each mechanism has its advantages and drawbacks. Companies can benefit from corporate PPAs’ long-term fixed costs and secure a guaranteed supply of electricity and environmental attributes, such as RECs and/or carbon credits. PPAs are tied closely to bringing new renewable projects, financing new capacities by the companies. However, PPAs are not widely available in certain markets and require a lengthy process to conclude. For example, companies in Singapore often use PPAs from projects in other markets to fulfil their renewable commitments.

While self-generation is considered a low-cost operation, it requires sufficient land or space and an initial investment. As the plant owner, the user is responsible for construction and operation, unlike on-site PPAs, where the developer handles this. It is especially challenging for data centres, which are typically located in big cities with limited space for plant installation.

Net metering can be a good option if one aims to benefit from reduced electricity bills and has limited space for solar installation. However, some regulatory constraints cap the size of eligible systems and limit the export volume. 

Unbundled RECs and green tariffs are among the simplest renewables procurement options. Typically, they do not require long-term electricity purchase commitments. RECs are sourced from suppliers, while green tariffs are offered by utilities on a subscription basis, charging a premium per kWh to claim associated environmental benefits. While straightforward and accessible, these mechanisms expose companies to price volatility.

Similar to RECs, carbon credits allow companies to claim emission reductions by purchasing them from project owners without directly developing the projects. While they can help fund sustainable initiatives, like renewables, strict criteria and effective use of investments from carbon revenues are essential.

The availability of procurement options can improve affordability and expand access to clean power

The availability of renewables procurement options influences the range of clean electricity prices in a country. Indonesia, the only country among the major economies without a green tariff mechanism, has a narrower price range compared to the other four countries. This suggests that offering diverse renewables programmes, such as green tariffs, Power Purchase Agreements (PPAs) and Renewable Energy Certificates (RECs), can enhance market competition, improve affordability and expand access to clean electricity.

The overall cost of electricity under the PPAs and the power wheeling mechanism remains unclear, as it depends on negotiations between the parties involved. As a result, the current price ranges do not account for this mechanism, which could potentially widen the range further.

Contracting Power Purchase Agreements (PPAs) for renewables sourcing seems a preferred way for companies to secure a stable supply of clean energy with a guaranteed long term price. Google has taken steps to secure PPAs in Europe and sealed a multi-year deal with a utility for a clean power supply from rooftop solar in Singapore. Amazon has committed to purchasing electricity from a 210 MW solar power plant connected to the Java-Madura-Bali grid under a PPA with PLN.

Power wheeling mechanisms are in different stages of implementation in the five countries, except for Indonesia, which remains under consideration. The limited availability of corporate renewable procurement options is one of the key barriers to renewables investment. Power wheeling can help overcome this by enabling shared grid access, attracting private investment without straining the state budget.

Giant tech companies have moved to secure large-scale, regular PPAs directly with utilities, enabling significant investment in project development. However, offering different and accessible procurement schemes, such as virtual PPAs and green tariffs subscription programmes without PPAs, allows smaller data centre companies to afford solar and wind power supply. A more robust, diverse mix of procurement mechanisms enables companies to select cost-effective solutions that align with their specific preferences.

A wide array of programmes can also provide more avenues for the adoption of storage facilities, offering specific incentives for project developers to integrate this technology with intermittent renewables.

Establishing a sustainability framework for data centres is crucial from the outset as the industry expands. Once data centres are operational, implementing energy efficiency improvements becomes significantly more challenging. Upgrading existing facilities to meet sustainability standards is difficult, as customers require uninterrupted service, limiting opportunities for intervention.

Some ASEAN countries, such as Singapore and Malaysia, have introduced sustainability frameworks for data centres, but these were implemented after the industry had already begun to boom, potentially leaving many operational facilities with minimal alignment to sustainability standards. Currently, no regulation requires old and less efficient facilities to retrofit or meet specific energy efficiency or renewable energy standards.

Without national frameworks, data centres usually follow international standards when establishing facilities. While these standards are globally recognised, they are not a one-size-fits-all solution to ensure the sustainable growth of data centres in ASEAN.

National frameworks enable a more tailored approach to managing energy transition risks in each country, addressing specific national priorities. Complementing these frameworks with government incentives will help the industry move forward more sustainably without compromising the broader energy transition agenda.

National frameworks can also address the challenges in data transparency in the industry. Implementing systematic and publicly accessible reporting, including emissions reporting, will greatly accommodate more timely investment decisions and more accurate policymaking, allowing faster progress toward decarbonising the data centre industry.

In addition to sustainability standards, Malaysia has established the Digital Ecosystem Acceleration (DESAC) incentive scheme under its vision to become ASEAN’s digital capital, targeting data centres and cloud computing. While the incentives do not directly target solar and wind and energy efficiency adoptions, one of the eligibility criteria for data centres is the adoption of at least one green technology.

Among other countries, Singapore is the only one with dedicated incentives for adopting green technologies in data centres. Its programmes encourage research and development in the data centre industry to implement innovative solutions for driving greener data centres.