Microsoft pulls out of AI datacentre project in Essex over power supply concerns

Development by UK firm Nscale heralded by ministers as largest of its kind in country loses anchor tenant

The development of a huge AI datacentre hailed by the UK government has received a fresh setback after Microsoft pulled out of the project over concerns about power supplies.

The development by the British company Nscale, heralded by ministers as the country’s largest AI datacentre when it was announced in 2025, was planned to open at Loughton in Essex next year.

Doubts had already emerged about the scheme after the Guardian revealed in March that the location was still an operational scaffolding yard.

Now there are further concerns after Microsoft, one of its largest planned customers and expected to have been the anchor tenant, informed the company that it was pulling the plug on its agreement.

It comes a month after it emerged that power supply problems meant the project would face a lengthy wait before coming online.

Keir Starmer’s government had highlighted the Loughton project when announcing the UK’s AI strategy in 2025, describing it as the “largest UK sovereign AI datacentre”. Datacentres are the central nervous system of AI technology such as chatbots.

The end of the deal with Microsoft, first reported in the Telegraph, means Nscale has lost its only publicly announced customer for the Essex datacentre. It is understood that Microsoft remains on board for another project the company has in Norway.

Nscale, which is backed by tech companies including Nvidia, has positioned itself as Britain’s “sovereign” datacentre provider but the loss of an anchor tenant for its Loughton project could undermine its ambition to float on Wall Street this year with a potential valuation of $35bn (£26bn).

Targeting the rapid growth of AI to boost the economy, 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.

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.

Nscale is a “neocloud”, one of a number of companies with deep ties to Nvidia that are building the key infrastructure for the AI boom. It is this relationship with Nvidia that meant it and CoreWeave were chosen as key players in the UK’s sovereign AI push, which happened under Starmer.

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.

Driven by hopes of an economic transformation, many are taking on increasingly risky debt, including companies vital to the AI boom. If Nscale pushes back its initial public offering in New York, these vulnerabilities may come into sharper focus.

The former UK deputy prime minister Nick Clegg and the former Meta chief operating officer Sheryl Sandberg are board members at the company. Clegg holds a 0.25% stake that could be worth $88m if the company floats at a $35bn valuation.

It emerged earlier this month that UK Power Networks (UKPN), which owns and maintains the electricity grid across London and the south-east of England, had informed Nscale that it would not be able to supply enough power to the company’s Loughton datacentre until the early to mid-2030s.

Nscale said 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 scaffolding yard site has been cleared by Nscale, and the company is investigating whether it can generate power onsite and whether it can speed up the connection process.

An Nscale spokesperson said: “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.

“Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts.”