Microsoft has withdrawn from a planned AI datacentre project in Loughton, Essex, citing concerns over power supply constraints, marking a significant setback for the British company Nscale and the UK government’s broader AI ambitions. The datacentre, which was unveiled last year and positioned by ministers as the country’s largest sovereign AI facility, was scheduled to open in 2027.

Nscale, a London-based firm backed by major tech players including Nvidia, had announced Microsoft as its anchor tenant for the Essex site. However, the US technology giant informed Nscale this month that it was ending the agreement due to challenges securing sufficient electricity from the grid. UK Power Networks, which manages the electricity distribution in London and the southeast, had previously advised Nscale that it would not be able to provide adequate power to the Loughton datacentre until the early to mid-2030s.

The power supply issues have created significant delays, undermining Nscale’s timeline for the facility and raising concerns about the viability of the project. The scaffolding yard chosen for the site remains operational, adding to doubts about the development’s readiness. Despite these obstacles, Nscale maintains its commitment to the Loughton location and is exploring alternative energy sources, including the possibility of onsite power generation, as well as pursuing other expansion sites across the UK.

Nscale’s ambitions include a planned initial public offering (IPO) in New York this year, with a target valuation of approximately $35 billion (£26 billion). The loss of Microsoft as the Loughton anchor tenant could impact these plans, especially as market volatility and financing challenges weigh on AI infrastructure companies globally. Microsoft, however, remains engaged with Nscale for other projects, including a datacentre in Norway, which is also reportedly facing delays.

The UK government has highlighted AI technologies as a key driver of economic growth and has backed Nscale as part of its sovereign AI strategy alongside other companies such as CoreWeave. The government has pledged to invest in upgrading energy infrastructure, aiming to overcome longstanding grid limitations that have constrained data centre development. Officials have noted efforts to reverse decades of underinvestment and to deliver the largest grid upgrade in recent history.

Nscale, founded in 2024 by Australian CEO Josh Payne, boasts an executive board including former Facebook executives Sheryl Sandberg and Sir Nick Clegg. The company has secured significant investments, including a £500 million commitment from Nvidia. The Loughton centre was projected to generate around 500 construction jobs and 250 permanent roles once operational.

While Nscale insists that its relationship with Microsoft remains strong and that the power grid issues are localized to London’s infrastructure, the developments underscore the critical role of energy availability in supporting the rapid expansion of AI-focused datacentres in the UK and beyond.