South-East Asia Pauses Datacentre Boom Amid Power and Water Shortages

Power and water shortages are slowing down the rapid growth of datacentres across south-east Asia. The region became a major center for this construction because a worldwide surge in artificial intelligence increased the demand for digital storage.

In early 2026, Thailand’s datacentre industry was growing quickly after its board of investment approved multi-billion-dollar projects from major technology and infrastructure companies. By September 2026, the country changed course and paused construction on 49 projects while holding off on 117 more approval decisions. Officials stopped these projects because they were worried about a lack of detailed rules for regulation and monitoring.

Other areas in the region are also stepping back from rapid approvals. In Indonesia, the governor of West Java halted construction on a datacentre because it lacked proper permits and a complete environmental assessment.

These recent halts follow strict limits set earlier by Singapore, which was south-east Asia’s leading datacentre hub through the 2010s. Singapore placed a moratorium on new datacentres from 2019 to 2022 because the facilities use large amounts of water and electricity. Since that moratorium ended, Singapore has kept approvals selective due to land limits and sustainability rules, adding only 95 megawatts of operational capacity between 2023 and 2026, according to a report by Cushman and Wakefield.

As companies looked beyond Singapore to build massive facilities for large language models, Malaysia became a major beneficiary. Operational capacity in the southern Malaysian state of Johor grew more than tenfold from 94 megawatts in 2023 to 1,110 megawatts in 2026, with thousands more megawatts planned or under construction. Johor has attracted $40 billion in datacentre investment, according to Menteri Besar Onn Hafiz Ghazi, who heads the state government. Major operators like Microsoft and AirTrunk have committed billions of dollars to expand cloud and artificial intelligence infrastructure there.

Other locations across south-east Asia are also expanding their pipelines, including greater Jakarta, Batam, Bangkok, Manila, and Ho Chi Minh City. However, this rapid growth is straining local resources. Energy consultancy Wood Mackenzie estimates that datacentres in Johor already consume 24% of the state's total power, and that figure could reach 40% by 2035. Alvin Tan, a research analyst at Wood Mackenzie, says this rapid growth threatens to create local grid bottlenecks and increase the need for power upgrades and new electricity supplies.

In Thailand, energy minister Akanat Promphan noted that datacentres require large amounts of electricity generated from expensive imported gas, prompting calls for higher electricity tariffs for datacentre users. Water supplies are also under pressure. Johor is prone to droughts and its operating datacentres require about 675 million cubic meters of water per day. In Indonesia, research firm Tenggara Strategics reported that water-cooled datacentres placed in hot, humid lowlands use elevated amounts of water. In Thailand, residents near the Eastern Economic Corridor worry about the strain on depleted water reservoirs, such as the Khlong Luang Reservoir in Chonburi. Somnuck Jongmeewasin, research director for the advocacy group EEC Watch, points out that water is being piped to industrial estates despite the reservoir being shallow and under strain.

Local communities are starting to push back against these changes. In February, Johor saw its first public protest against datacentre construction over dust pollution and potential water supply impacts near residential areas. Jie-Sheng Tan-Soo, an assistant professor at the Lee Kuan Yew School of Public Policy in Singapore, notes that datacentres generate fewer long-term jobs than other industries that use comparable amounts of land, electricity, and water. He explains that communities are reasonably asking whether they receive a fair share of benefits given the environmental and infrastructure costs.

Datacentre operators say they are working to make their facilities more resource efficient. Bridge datacentres built a water reclamation plant and pipe network in Johor, while AirTrunk partnered with sewage treatment operator Johor Special Water to recycle unused wastewater. An AirTrunk representative stated that its campuses are designed to run more efficiently than conventional datacentres, though the company did not provide detailed data on efficiency. Sustainability challenges remain, as Microsoft's published data shows its Asia-Pacific facilities are its least energy efficient globally, even though the company is looking at clean energy projects to fuel them.

To manage these resource pressures, governments are tightening rules. Malaysia formed a task force to review new projects for energy and water security, and Johor stopped approving Tier 1 and Tier 2 datacentres that use up to 50 million liters of water daily. Thailand introduced a framework requiring energy and water use reviews, power guarantees, and higher tariffs. Tan-Soo advocates for integrated policies that force operators to face the full social costs of the resources they consume, warning that south-east Asia is currently only partially prepared for these environmental impacts.

Summary

The rapid expansion of artificial intelligence infrastructure in south-east Asia has collided with severe local shortages of power and water. Governments across the region are now pausing projects and tightening regulations to protect local resources, forcing technology companies to rethink how they build and power future datacentres.