June 13, 2024
JAKARTA – During Singapore’s data center moratorium from 2019 to 2022, Johor State in Malaysia increased its data center capacity from 10 megawatts to 1.3 gigawatts. By contrast, Indonesia currently operates only around 300 MW, despite a similar proximity to the city-state, according to the Indonesian Data Center Association (IDPRO).
Industry players forecast that Indonesia will reach a data center capacity of 2.3 GW in the next 10 years, driven by the rise of artificial intelligence computing and an abundance of renewable energy potential.
However, they suggest the government provide convincing incentives to ensure the country gets ahead of others in the region.
After the crypto mining craze of the last decade, AI has become the next energy-intensive tech innovation. According to estimates by the International Energy Agency, OpenAI’s ChatGPT consumes around 10 times more electricity than common computing tasks, such as Google Search.
Niccolò Lombatti, an industry analyst at Fitch Solutions’ country and industry risk research firm BMI Research, said major economic centers tended to be primary data center markets. However, due to competition with real estate firms looking to build offices in metropolitan areas, data center investments were moving to secondary cities that offered competitive land and electricity prices while being close to the urban centers.
Speaking to The Jakarta Post on Friday, Lombatti also pointed to the importance of renewable energy for data centers to protect existing and new customers against the increasing regulatory risk associated with the use of coal-powered infrastructure. Additionally, sustainable debt is becoming increasingly popular for data center investment.
Within Southeast Asian, Lombatti expects data center investment to shift from Singapore to Johor in Malaysia and Batam in Indonesia. However, despite both Malaysia and Indonesia having significant potential for renewable energy, the former has taken the lead in attracting demand from Singapore.
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Hendra Suryakusuma, chairman of the IDPRO, said the data centers of the association’s members had a combined capacity of 200 MW. That number might increase to around 300 MW if data centers of foreign companies, such as Amazon and Microsoft, were included.
No lack of ambition
The association forecasts that data center capacity in Indonesia will grow to 2.3 GW in the next 10 years, but Hendra admits that growth in Johor has been much faster.
“To be honest, Malaysia has capitalized on Singapore’s data center moratorium in a really perfect way,” he told The Jakarta Post on Thursday.
Hendra explained that the majority of its members were still using CPU servers instead of GPU servers, which could be used for AI development. Currently, only three of the 14 members of the association provide GPU services.
Regarding the usage of renewable energy, he stated that many companies from Europe and the United States specifically request green data centers to accommodate their decarbonization pledges.
“In fact, many of our members cannot comply with that. Thus, we’ve responded by buying renewable energy certificates from [state-owned electricity firm] PLN, which come at an additional cost of Rp 35 per kilowatt-hour [KWh],” Hendra said.
According to him, Indonesia has the potential to be a data center hub in the region due to its green energy potential. He suggested the government provide incentives beyond income tax subsidies to attract more investors to build data centers in the country rather than elsewhere in the region.
Andreuw Thonilus Albert, CEO of Telkom Group’s data center subsidiary NeutraDC, agreed that, as data center capacity in Singapore was maxed out, many investors were shifting to Johor and Batam.
“How could Johor increase [its data center capacity] so quickly? Because the government offers many incentives, such as tax exemptions and lower electricity prices to attract data center players. We need to collectively determine what kind of incentives we should provide to turn Indonesia into a data center hub,” Andreuw said on May 30, as quoted by Detik.
Read also: PLN says it needs $25b to build renewable energy grid
Renewable benefits
Abra Talattov, head of the Center of Food, Energy and Sustainable Development at the Institute for Development of Economics and Finance (INDEF), opined that Indonesia had enough electricity supply to support data center demand. He cited PLN’s long-term electricity procurement plan (RUPTL) for 2021-2030, which projects a power reserve of 40 to 63 percent over expected organic demand in 2030.
Regarding renewable energy, PLN is also in the process of building a green super grid that could increase the renewable energy baseload to 34 GW by 2040, according to Abra.
The term super grid refers to the network high-voltage transmission lines carrying electricity over long distances.
“With such a huge renewable energy supply, I think Indonesia has a competitive advantage in attracting data center investments. At the same time, that could accelerate the utilization of renewable energy in the country, as the challenge is more on the demand side rather than the supply side,” he told the Post on Saturday.
BMI’s Lombatti agreed that its proximity to Singapore gives Batam a competitive edge for data center investment, but on the other hand, as an island, construction there would take longer and real estate prices would rise more quickly than in Johor due to the limited space.
Another key issue that may discourage foreign data center investors is that Indonesia still did not allow foreign vessels to manage subsea fiber-optic infrastructure, Lombatti argued.
“For firms like Google, Amazon and Microsoft, this is a disadvantage, because it does not allow them to easily connect their Indonesian data centers to their proprietary global fiber-optic network. Malaysia changed its law in March to allow foreign vessels to manage such infrastructure, boosting its competitiveness vis-à-vis Indonesia,” he said.
In 2021, the Transportation Ministry issued a regulation that allows the usage of foreign vessels to conduct subsea work in Indonesian territory with a special permit.
“However, if the job can be conducted by Indonesian ships, we still prioritize using local ships,” a ministry official said on Sep. 22 last year, as quoted by Kompas.com.