Microsoft pulls out of Nscale’s Essex AI data centre over grid delays, in blow to UK sovereign AI push

Microsoft has pulled out of Nscale’s planned AI data centre in Loughton, Essex, a project the UK government had heralded as the country’s largest of its kind. The move was first reported by The Telegraph on October 18 and confirmed by the BBC and The Guardian. Microsoft, which had been expected to be the anchor tenant, declined to comment.

Power is the problem

Earlier this month UK Power Networks, which runs the electricity grid across London and south-east England, told Nscale it would not be able to supply enough power to the Loughton site until the early to mid-2030s. According to the BBC, the data centre had been due to receive its power supply at the end of this year.

“We remain committed to both the Loughton project and the UK, and we are exploring alternative power sources for the site, in addition to other expansion sites in the UK,” an Nscale spokesperson said. “Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts.” The two companies continue to work together on projects in Norway, Portugal and the United States.

A setback for the UK’s sovereign AI ambitions

Keir Starmer’s government highlighted the Loughton project when it set out the UK’s AI strategy in 2025, describing it as the “largest UK sovereign AI datacentre.” Nscale pledged £2bn to build the facility, which is expected to create 250 permanent jobs. Only last month, Microsoft said part of the $30bn it is investing in the UK would fund a supercomputer at the site.

The Guardian reported that the end of the Microsoft deal leaves Nscale without its only publicly announced customer for the Essex site. The Nvidia-backed company is seeking a New York listing this year at a potential valuation of $35bn, and the loss of an anchor tenant could complicate those plans. Its board includes former UK deputy prime minister Nick Clegg and former Meta chief operating officer Sheryl Sandberg.

Energy as the binding constraint

The project had already faced scrutiny after The Guardian revealed in March that the planned site was still an operating scaffolding yard; the yard has since been cleared. The power delay underlines how grid capacity has become a major brake on data-centre development. Ofgem said in June that 315 data centres were queueing to connect to Britain’s grid, representing 73GW of demand, compared with peak national demand of 45GW.

The episode also feeds wider concerns about “neoclouds” such as Nscale, companies with deep ties to Nvidia that are taking on increasingly risky debt to build AI infrastructure, and which some analysts see as a potential weak point in the AI economy as delays pile up.

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Sources: The Guardian, BBC News, The Telegraph, The Guardian (Sept 24). Image: Nscale (via The Guardian).