Microsoft has pulled out of a planned AI datacentre in Loughton, Essex, dealing a fresh setback to a project the UK government had promoted as the country’s largest sovereign AI facility. The development’s British operator, Nscale, says it remains committed to the site and is exploring alternative power sources. The project was announced in 2025 and was planned to open next year. Microsoft had been expected to act as its anchor tenant and was one of its largest planned customers. Its withdrawal means Nscale has lost the Essex datacentre’s only publicly announced customer. The company’s relationship with Microsoft continues on a separate project in Norway, according to the source. Power constraints are central to the departure. Earlier in October, UK Power Networks, which owns and maintains the electricity grid across London and south-east England, informed Nscale that it could not supply enough power to the Loughton site until the early to mid-2030s. The delay raised doubts about when the facility could become operational. Nscale has cleared the site, previously an operational scaffolding yard, and is investigating on-site generation as well as ways to accelerate a grid connection. An Nscale spokesperson said the company remained committed to Loughton and the UK, and was exploring alternative power sources and other potential UK expansion sites. The spokesperson described the issue as a London-wide grid problem and said it had no effect on Nscale’s other contracts. The company also said its relationship with Microsoft remained strong and long-term. The setback puts pressure on a project that ministers had highlighted as part of the government’s AI strategy. When that strategy was announced in 2025, the government described Loughton as the “largest UK sovereign AI datacentre”. Datacentres provide the computing infrastructure used by AI services, including chatbots. The government’s effort to use AI to support economic growth has focused on Nscale and US-based CoreWeave, both backed by Nvidia. Nscale is a so-called neocloud provider: a company building infrastructure for the AI boom and closely tied to Nvidia. The company has presented itself as a British sovereign datacentre provider. But losing its expected anchor tenant could complicate its ambitions to float on Wall Street this year, which have been associated with a potential valuation of $35bn (£26bn). That figure is a potential valuation, not a confirmed offer or market value. The source notes wider concerns about neocloud companies as delays mount among partners and some firms take on increasingly risky debt to build AI infrastructure. Any delay to Nscale’s planned initial public offering could bring those vulnerabilities into sharper focus, though no postponement was reported. The company’s board includes former UK deputy prime minister Nick Clegg and former Meta chief operating officer Sheryl Sandberg. Clegg holds a 0.25% stake, which could be worth $88m if Nscale floated at the potential $35bn valuation. The Loughton project had already faced questions after it emerged that the site was still being used as a scaffolding yard. The power-supply problem now adds a more fundamental obstacle: even with the site cleared, a large datacentre cannot proceed as planned without a workable source of electricity. Source: https://www.theguardian.com/uk-news/2026/oct/18/microsoft-drops-huge-ai-datacentre-project-in-essex-over-power-supply-concerns