Microsoft's UK Data Centre Exit Puts Spotlight on Power Shortages Holding Back AI Expansion

Microsoft has withdrawn from an agreement to use a planned £2 billion ($2.6 billion) artificial intelligence data centre in Loughton, Essex, dealing a setback to the UK's ambitions to expand its domestic AI computing capacity. The facility, developed by British infrastructure company Nscale, was presented by ministers as a major part of the country's plans to build sovereign AI infrastructure.

The project has faced repeated delays because of electricity supply constraints. UK Power Networks reportedly told Nscale that sufficient power would not be available until the early to mid-2030s, despite the facility having been scheduled to open in 2027.

Microsoft's withdrawal was first reported by The Telegraph. The exit leaves Nscale searching for a replacement customer as it continues to explore ways to power the site.

Grid Delays Threaten Data Centre Timetable

The Loughton project was announced in 2025 as part of the government's drive to strengthen the UK's AI infrastructure. The planned facility was designed to accommodate 23,000 NVIDIA chips, with Microsoft expected to take 50 megawatts (MW) of computing capacity.

The difficulties reflect a wider challenge for data centre developers seeking access to the electricity grid. The Financial Times reported that 315 UK data centre projects were waiting for grid connections, representing a combined demand of 73 gigawatts (GW). That exceeds the UK's peak electricity demand of about 45GW, although not every project in the queue will necessarily be built or dedicated to AI.

The Loughton site had not progressed to a completed data centre by March 2026, when The Guardian reported it was still being used as a scaffolding yard. Nscale has since said it is exploring alternative power sources and ways to accelerate the site's connection to the grid.

An Nscale spokesperson told Reuters that the company remained committed to the project and the UK. The spokesperson said the company was examining alternative energy supplies and stressed that the issue would not affect its other contracts with Microsoft.

Government's AI Ambitions Face Infrastructure Test

Former Prime Minister Sir Keir Starmer's government has promoted investment in domestic AI infrastructure as part of its technology strategy. Delays at Loughton raise questions about how quickly the UK can provide the electricity and supporting infrastructure required for large-scale computing facilities.

Microsoft and Nscale continue to work together on projects in Norway, Portugal and the United States. Nscale has stressed that the Essex withdrawal does not end its wider commercial relationship with the technology company.

Nscale IPO Plans Face Added Scrutiny

The withdrawal comes as Nscale prepares for a planned initial public offering in the United States. The company's prospectus identified Microsoft and AI developer Anthropic as expected major customers.

The Guardian reported that Nscale was targeting a potential valuation of $35 billion (about £26 billion) for the flotation. Losing Microsoft's expected commitment to the Essex facility could complicate the company's plans, although neither company has announced that the withdrawal will change the IPO timetable.

Backed by NVIDIA, Nscale supplies computing infrastructure used to train and run AI models. Its next steps at Loughton will depend partly on whether it can secure an alternative power supply and attract a new customer for the site. The company has said it remains committed to the project, but the reported delay in grid access presents a significant challenge to its original timetable.