Microsoft has withdrawn from its agreement to be the anchor tenant at Nscale’s planned AI datacentre in Loughton, Essex, dealing a significant blow to a project the UK government had hailed as the country’s largest sovereign AI datacentre when it was announced in 2025.
The withdrawal follows a power supply crisis that emerged last month when UK Power Networks, which manages the electricity grid across London and south-east England, informed Nscale it could not guarantee sufficient power supply to the Loughton site until the early to mid-2030s. Microsoft, one of Nscale’s two largest planned customers and the only publicly announced tenant for the Essex project, has now terminated its agreement for that site. The company is understood to remain a customer for Nscale’s Norway project.
Nscale said its “relationship with Microsoft remains strong and long-term” and attributed the development to “this unfortunate London-wide grid issue.” The company said it is committed to the Loughton project and is exploring both onsite power generation and alternative expansion sites in the UK.
A Project Built on Announcements
The Loughton datacentre has faced questions since before the power supply issue emerged. In March this year, report that the site described in government press releases as Britain’s largest AI datacentre was still an operational scaffolding yard. Nscale has since cleared the site, but the combination of that revelation and the now-confirmed power supply delay had already placed the project’s timeline in serious doubt.
The UK government, under Prime Minister Keir Starmer, included the Loughton project in its 2025 AI strategy announcement, describing it as a cornerstone of the country’s sovereign AI infrastructure plans. Both Nscale and the US company CoreWeave were selected as key partners due to their close relationships with Nvidia, which backs Nscale.
The IPO Complication
The timing is particularly sensitive for Nscale. The Nvidia-backed company filed for a US initial public offering last month with a target valuation of $35 billion. Its prospectus listed Microsoft and Anthropic as its major customers. The loss of Microsoft as the anchor tenant for its flagship UK project — which has no remaining publicly announced customers — could complicate that float. Former UK Deputy Prime Minister Nick Clegg, a Nscale board member, holds a 0.25% stake that would be worth approximately $88 million at the $35 billion valuation.
The situation also reflects a broader fragility in the neocloud sector. Neoclouds — infrastructure companies with deep Nvidia ties building the compute backbone of the AI boom — have grown rapidly by taking on significant debt against the expectation of sustained AI spending. Nscale scaled from $100 million to more than $103 billion in total contracted value in two and a half years. Some analysts have begun questioning whether the neocloud model, heavily exposed to delays and power constraints, represents a systemic vulnerability in the broader AI economy.
Power availability is increasingly emerging as the binding constraint on AI infrastructure globally. Nscale’s Essex situation is an acute version of a challenge playing out across Europe and North America, where grid capacity is failing to keep pace with the speed at which datacentre demand is accelerating.
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