Microsoft has pulled out of a significant AI datacentre project in Loughton, Essex, dealing a blow to British firm Nscale. The facility, which the UK government previously hailed in 2025 as the country’s largest sovereign AI datacentre, had been scheduled to open next year. Microsoft, intended to serve as the anchor tenant, confirmed it is ending its agreement for the site. According to the end of the deal with Microsoft, first, In the Telegraph, means Nscale has lost its only publicly announced customer for the Essex datacentre.
This departure follows reports from earlier this month that UK Power Networks (UKPN) informed Nscale it could not supply the necessary energy to the location until the early to mid-2030s. The site, which previously functioned as a scaffolding yard, has since been cleared, though the grid capacity issues have severely stalled progress. Doubts had already emerged about the scheme after revealed in March that the location was still an operational scaffolding yard. It comes a month after it emerged that power supply problems meant the project would face a lengthy wait before coming online. According to nscale, It was “committed to the project” but the failure to find a quick fix to the power supply issue underlines how much energy has become a hindrance to datacentre development.
The loss of Microsoft as a customer marks a major setback for Nscale, a “neocloud” provider with close ties to Nvidia.
The project was central to the UK government’s AI strategy under Prime Minister Keir Starmer, designed to bolster economic growth. The company’s failure to secure an anchor tenant for the Loughton site could complicate its ambitions to launch an initial public offering in New York, where it had targeted a valuation of $35bn. Datacentres are the central nervous system of AI technology such as chatbots.
Nscale’s board includes prominent figures such as former UK deputy prime minister Nick Clegg and former Meta COO Sheryl Sandberg.
Clegg holds a 0.25% stake in the firm, which could be valued at $88m if the company achieves its projected float valuation.
Currently, Nscale is one of several Nvidia-backed companies building infrastructure deemed vital to the AI boom, though some analysts are raising concerns regarding the risks and high debt levels involved in these rapid expansions. The UK government’s proposals to harness the technology have focused on two Nvidia-backed companies: the London-based Nscale and the US company CoreWeave, targeting the rapid growth of AI to boost the economy. Many are taking on increasingly risky debt, including companies vital to the AI boom, driven by hopes of an economic transformation.
Despite the cancellation, Nscale maintains that its broader relationship with Microsoft remains robust, noting that the tech giant continues to partner with them on a separate project in Norway. Regarding the Essex site, a company spokesperson stated they remain committed to the Loughton project and the UK, and are actively investigating alternative power generation methods and potential expansion sites. “Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts.”.
The power supply impasse highlights a growing tension between the massive energy demands of modern AI infrastructure and current grid limitations. While AI investment has been a noted contributor to UK economic performance amid global volatility, the challenges faced by Nscale emphasize the practical hurdles facing the government’s sovereign AI aspirations. Official figures show investments in AI are among the factors helping Britain’s economy to beat expectations of a weaker growth performance this year as the war in the Middle East rattles global business activity. There is, however, a growing chorus of voices which suggest that neoclouds may be a vulnerability in the broader AI economy, especially as delays pile up across partners.
