Microsoft pulls out of Nscale's Essex AI data centre as grid power slips to the 2030s

The building that was supposed to show off Britain's AI ambitions has lost its most important customer before a single server was switched on. Microsoft has ended its agreement to anchor Nscale's planned AI data centre in Loughton, Essex, a project that ministers had described as the largest sovereign AI data centre in the country. The reason is not a lack of demand for AI computing. It is a lack of electricity.

The Telegraph first reported the move on Sunday, 18 October 2026. On Monday, Microsoft confirmed it to Reuters. "This decision relates to a single site," a Microsoft spokesperson said, adding that the company remains committed to its partnership with Nscale. Grid officials had told Nscale that they did not expect to supply enough power to the site until the 2030s, years after the planned opening.

What happened

According to the reports, Microsoft informed Nscale that it was terminating its agreement for the Loughton site. Microsoft was expected to be the anchor tenant there, and the Guardian reports that it was the only publicly announced customer for the Essex facility. IT Pro also describes Microsoft as the only customer signed up for Loughton so far.

Microsoft did not comment when the BBC asked on Sunday, but by Monday it had a clear message ready. A spokesperson told IT Pro: "We remain committed to our partnership with Nscale, including work to build robust digital infrastructure and support AI growth globally. This decision relates to a single site."

Nscale gave nearly identical statements to Reuters, the BBC and the Guardian. "Our relationship with Microsoft remains strong and long term, and this unfortunate London wide grid issue has no impact on our other contracts," a spokesperson said. "We remain committed to both the Loughton project and the UK, and we are exploring alternative power sources for the site, as well as other expansion sites in the UK."

The two companies still work together elsewhere. According to the BBC and IT Pro, they have joint projects in Norway, Portugal and the United States. IT Pro adds that the Norwegian facility is believed to be behind schedule as well.

What Loughton was supposed to be

The plan was big by British standards. When it was announced in 2025, Nscale and Microsoft said the site would start with 50 megawatts of AI computing capacity and could grow to 90 megawatts. Inside, 23,040 Nvidia GB300 GPUs would form what Nscale called the UK's largest AI supercomputer, and that capacity was meant to power Microsoft's Azure cloud services in Britain. Nscale pledged about £2 billion for the site, and the BBC says it was expected to create 250 permanent jobs.

To put 90 megawatts into perspective, Euronews calculated, based on Ofgem figures, that running at that level all year would use about as much electricity as 315,000 typical UK homes. That is roughly the size of a large town, plugged into one building on the edge of London.

The project also carried a lot of political weight. It was one of the technology deals announced during US President Donald Trump's state visit to Britain in September 2025. The government of Keir Starmer highlighted it as the "largest UK sovereign AI datacentre" when it presented its AI plans, and IT Pro notes that the government's AI Opportunities Action Plan trumpeted Nscale's promise to invest $2.5 billion in British data centre infrastructure over three years. According to the BBC, Microsoft had said that part of its own $30 billion (£22 billion) investment in the UK would fund the Loughton supercomputer.

A slow unravelling

The Microsoft exit is the latest step in a story that has been going wrong for most of 2026.

In March, the Guardian found that the planned site was still an operating scaffolding yard. Nscale has since cleared it. In July, reports said that power would not arrive in time for the planned 2027 opening and that Nscale was talking about gas fuel cells as a temporary fix. Then, in late September, the newsletter The Morning Intelligence reported that UK Power Networks (UKPN), which runs the local electricity network in London and the South East, had told Nscale the grid could not supply enough power until somewhere between the early and the middle of the 2030s. The Guardian picked up the story on 24 September.

UKPN would not talk about a single project, but said that many data centres waiting to connect to its network are held up by work on the wider national transmission network. National Grid said it was working with the national system operator NESO and local network operators to speed up connections.

For Microsoft, the arithmetic is simple. A customer that planned to run Azure workloads from Loughton in 2027 cannot wait for a power line that may come around 2033 or later. AI capacity is worth the most right now, while demand is high and the hardware is new. GPUs bought for a building that sits dark for years would lose much of their value before they ever ran a model.

Power is now the real bottleneck

Loughton is not an isolated case. Reuters reports that bottlenecks in British grid connection queues have delayed some data centre projects by as long as 13 years. A survey by the grid consultancy Roadnight Taylor, cited by Property Week, found that half of UK data centre developers expect to get a grid connection within one to two years, but in practice often wait three to eight. More than half of the respondents named the grid connection as the main barrier to getting a project finished.

The problem is spreading beyond Britain. IT Pro points to a Savills report that found only 850 megawatts of data centre power capacity delivered across Europe, the Middle East and Africa since the start of 2025, 11 percent less than in the same period a year earlier. Gartner had warned two years ago that 40 percent of data centres could face constraints in power availability by 2027.

Regulators and grid companies are trying to respond. Ofgem has asked the infrastructure firm United Infrastructure to lead an industry effort to create standard connection designs for data centres, including substations and high voltage compounds, so that every project does not have to be engineered from scratch. UKPN now offers alternatives to a classic fixed connection: ramped connections, where capacity grows over time, flexible connections that are managed in real time, and profiled connections that match a site's expected usage pattern.

Ofgem also wants to clear speculative projects out of the queue. According to IT Pro, the regulator complains that many applications are speculative and proposes that data centre projects pay between £237,500 and £712,500 per megawatt when they accept a connection offer. For a site the size of Loughton, that would be a serious bill.

Our own calculation shows the scale: for 50 megawatts, the charge would range from about £11.9 million to £35.6 million. For the full 90 megawatts, it would be about £21.4 million to £64.1 million. That money would be paid upfront, before any revenue. The goal is to make developers think twice before reserving grid capacity they may never use, so that real projects can move up the queue.

What it means for Nscale

The timing is painful for Nscale. The company filed for an initial public offering in the United States last month, and according to Reuters its prospectus lists Microsoft and Anthropic among its expected major customers. The Guardian and IT Pro report that Nscale is aiming for a valuation of around $35 billion.

Nscale's growth has been extraordinary. Reuters reports that the company increased its total contracted value from $100 million to more than $103 billion in two and a half years. It is one of the so called neoclouds, companies with close ties to Nvidia that build and rent out AI computing capacity, alongside CoreWeave, Nebius, Crusoe and Lambda. Nscale stresses that the Microsoft decision has no impact on its other contracts, and that matters, because Loughton is only one site. Still, losing the only announced customer of your flagship home project weeks before a planned listing is not the story any company wants investors to read.

The Guardian notes a wider worry: a growing number of voices see neoclouds as a weak point in the AI economy, because many of them are financed with large amounts of debt and depend on a few very large customers. When a project slips by years, the financing behind it gets harder to justify.

Nscale says it has not given up on Loughton. It is looking at generating power on site, at ways to speed up the grid connection with UKPN, and at other sites in Britain. If on site generation works, the project could still happen, but it would probably look different, cost more and take longer than the original plan.

What it means for Britain's AI plans

The bigger loser may be the UK government's story about AI. Britain has bet heavily on attracting AI infrastructure, and two Nvidia backed companies, Nscale and CoreWeave, sit at the centre of its sovereign AI push. Loughton was supposed to be proof that the plan was working. Instead, it has become an example of a hard limit: you can sign deals at a state visit in a matter of days, but you cannot build high voltage grid capacity that fast.

The Guardian has already questioned whether parts of the multibillion pound AI investment drive rest on what it called phantom investments. A flagship site that started as a scaffolding yard and has now lost its anchor customer will not quiet those doubts.

There is also a lesson about geography. Data centres want to be close to London for fast connections, big customers and skilled staff. But the grid around London is one of the most crowded in the country. Nscale itself calls this a "London wide grid issue". Projects in places with spare power, such as near large renewable sources or in the north of Britain, may move faster, even if they are further from customers.

What it means for Microsoft

For Microsoft, Loughton is a small piece of a very large puzzle. The company spends tens of billions of dollars a year on data centres around the world and can shift capacity between regions and partners. Its message is clearly designed to calm both Nscale's investors and the British government: one site, not the partnership.

But the decision does show how cloud giants now think about AI capacity. Power and timing come first. A promise of computing capacity in 2027 is worth a lot. A promise of capacity in the 2030s, with no firm date, is worth much less, no matter how many GPUs are planned for the building. If the grid cannot deliver, the customer goes where the electricity is.

My take

This is one of the clearest signs so far that the AI race is turning into an energy race. The chips exist, the money exists and the customers exist. What is missing is the most boring part of the stack: cables, substations and transmission lines. These take years to plan and build, and no press release can speed them up.

For Britain, the real test is not whether Loughton is saved, but whether the grid reforms work. If Ofgem's fees push speculative projects out of the queue and flexible connections let new sites start smaller and grow, the next flagship project might actually open on time. If not, more AI capacity will be built in countries where power is easier to get, and Britain will keep announcing data centres that exist mostly on paper.

Sources

• The Telegraph, 18 October 2026, first report
• Reuters via CNA, 19 October 2026, with statements from Microsoft and Nscale
• The Guardian, 18 October 2026
• BBC News, 18 October 2026
• IT Pro, 19 October 2026
• Property Week, 19 October 2026
• The Guardian on the power delay, 24 September 2026
• Euronews, 29 September 2026