KUALA LUMPUR (Dec 31): Ranhill SAJ Sdn Bhd, Johor’s sole water operator, is leaning towards modular off-river storage units as a near-term solution to meet the state’s rising data centre water demand, said BIMB Securities Research in a note on Wednesday.

The research house noted that Ranhill SAJ, a subsidiary of Ranhill Utilities Bhd (KL:RANHILL), is taking a cautious approach to larger, capital-intensive raw water projects as actual usage continues to lag earlier capacity commitments.

BIMB Securities said the off-river storage units offer a lower-risk alternative as each unit can supply about 300 million litres per day (MLD) and is estimated to cost below RM1 billion, and is expected to provide faster approvals and lower capital risks.

The units may also limit the likelihood of domestic consumers facing higher water tariffs to recover the cost of oversized investments.

Ranhill's shift away from larger raw water projects mirrors Johor's recent water situation and also Malaysia's move to address underutilisation of the reserve grid capacity by revising its electricity supply framework for data centres, said the research house.

Under the revised framework by the Ministry of Investment, Trade and Industry (Miti) and the Energy Commission, operators must utilise at least 85% of their declared maximum demand in the first four years, and 75% in years five to six, or face penalties. The policy is aimed at limiting speculative grid bookings and improving long-term system planning.

BIMB Securities said that Johor’s 15 operational data centres currently consume around 18 MLD of water compared with the 45 MLD originally requested, which is about an estimated 40% utilisation rate.

According to the note, Ranhill SAJ estimated that Johor will need an additional 1,000 MLD of potable water supply by 2030, on top of projects already under construction. These include Layang 2 Phase 2, which will add 160 MLD, and the Semangar package plant with a capacity of 50 MLD, with both projects expected to be completed between 2026 and 2027.

However, potential new river sources such as Sungai Sedili Besar and Sungai Endau are located further away from Johor’s main industrial and data centre clusters, which poses further issues, said BIMB Securities.

“Based on data centre operators’ forward water demand submissions, immediate potable water availability is insufficient to meet projected requirements, necessitating material expansion of raw-water infrastructure over the remainder of the decade,” said BIMB Securities.

Therefore, BIMB Securities shared the notion that modular off-river storage units are an interim solution while longer-term raw water projects are being developed and data centre water demand continues to rise.

At the time of writing on Wednesday morning, shares of Ranhill Utilities were unchanged at RM1.65 and had a market capitalisation of RM2.14 billion.