Microsoft has pulled out of an agreement to use a major artificial intelligence data centre planned in England, after the project ran into a problem that is becoming one of the biggest obstacles to the global AI boom: a lack of electricity.
The US technology giant terminated its agreement with Nscale, the Nvidia-backed AI infrastructure company developing the site in Loughton, Essex, according to a report by The Telegraph on Sunday, October 18. The newspaper said Nscale had faced repeated delays on the project and that grid officials had told the company they did not expect to provide a power supply for the site until the 2030s.
Microsoft declined to comment when contacted by Reuters. The Telegraph did not say why Microsoft withdrew. Nscale said the decision did not affect its broader relationship with Microsoft. "Our relationship with Microsoft remains strong and long-term," a company spokesperson said.
A £2 billion project waiting for power
The Loughton facility was designed as one of the flagship projects of Britain's AI infrastructure push. According to reports, the planned £2 billion, or roughly $2.6 billion, data centre was designed to house around 23,000 Nvidia chips, with Microsoft expected to take 50 megawatts of computing capacity. It had been scheduled to open in 2027.
The project ran into trouble over its grid connection. UK Power Networks, the electricity distribution company serving London and the south-east of England, reportedly told Nscale that sufficient power would not be available until the early to mid-2030s, years after the planned opening date. The Guardian reported in March 2026 that the site was still being used as a scaffolding yard.
For a customer like Microsoft, which needs computing capacity now to meet surging demand for AI services, a delay of several years is effectively a deal-breaker. Cloud providers are racing to add capacity, and they are likely to prioritise sites that can deliver power and compute quickly.
Nscale stays committed
Nscale said it remains committed to the Loughton project and to the UK. The company said it is exploring alternative sources of power for the site and other UK expansion locations, as well as ways to speed up its grid connection. It is also looking for a replacement customer for the facility.
The company stressed that the grid issue had no impact on its other contracts. Microsoft and Nscale continue to work together on projects in Norway, Portugal and the United States.
The withdrawal nonetheless comes at a sensitive moment for Nscale. The company filed for a US initial public offering in September, and its prospectus names Microsoft and Anthropic as expected major customers. The Guardian has reported that the company is targeting a valuation of about $35 billion. Neither company has said the withdrawal will affect the timing of the IPO.
Nscale has grown at extraordinary speed. It provides computing power, data centres and software for training and running AI models, competing with companies such as CoreWeave, Nebius, Crusoe and Lambda. According to reports, its total contracted value has grown from about $100 million to more than $103 billion in roughly two and a half years.
Britain's grid bottleneck
The episode highlights a structural problem for Britain's ambitions to become a leading AI hub. According to the Financial Times, 315 data centre projects in the UK are waiting for grid connections, with combined demand of 73 gigawatts. That is far more than the country's peak electricity demand of about 45 gigawatts, although not every project will be built and not all are dedicated to AI.
Connection queues have become a major challenge across the UK's electricity system. Renewable energy projects, battery storage schemes and data centres have all faced waits of many years to connect to the grid. Regulators and network operators have introduced reforms to clear speculative projects from the queue and prioritise those that are ready to proceed, but building new transmission lines and substations takes years.
The Loughton project was announced in 2025 as part of the government's drive to strengthen domestic AI infrastructure. Successive ministers have presented data centres as critical national infrastructure and promoted "AI Growth Zones" intended to speed up planning and power access for large computing facilities. Microsoft's withdrawal shows how difficult it can be to turn those ambitions into operating capacity when the grid cannot keep pace.
A global power crunch
The UK is not alone. Across the United States, Europe and Asia, the rapid growth of AI has driven an unprecedented surge in electricity demand from data centres. Utilities in some US states have warned of capacity shortages, and technology companies have signed deals for nuclear, gas, solar and wind power to secure supplies. In some regions, the time needed to secure a grid connection has become the single biggest factor determining where data centres are built.
Power constraints are also adding to investor concerns about the economics of AI infrastructure. Technology stocks have been volatile this month, with chipmakers and AI cloud providers selling off over fears that the vast borrowing behind data centre construction may not generate sufficient returns. Projects that are delayed by years because of power shortages tie up capital without producing revenue.
Microsoft itself has adjusted its data centre plans before. In 2025, it slowed or paused some early-stage projects in several countries as it reassessed its capacity needs, while continuing to invest tens of billions of dollars a year in AI infrastructure overall.
Lessons for India
The episode carries lessons for India, which is in the middle of its own data centre boom. Cloud providers, AI developers and domestic operators are building large facilities in cities such as Mumbai, Chennai, Hyderabad and Noida, driven by rising digital demand, data localisation rules and India's growing AI ambitions. The largest venture deal in India this year was a $1 billion investment in Bharti Airtel's data centre business, Nxtra.
Reliable power supply, preferably from renewable sources, is a key factor in where those facilities are built. Indian states have competed to attract data centres with policies on land, power tariffs and open access to renewable energy. Britain's experience shows that grid capacity can quickly become a binding constraint, and that coordinated planning between data centre developers, utilities and governments is essential.
India's expanding renewable energy capacity and investments in transmission could become a competitive advantage if they keep pace with demand. But if grid connections lag, India could face the same bottlenecks now confronting the UK.
What comes next
For Nscale, the immediate priorities are finding alternative power for Loughton, securing a new customer for the site and reassuring investors ahead of its IPO. For Microsoft, the withdrawal is a small adjustment within a vast global infrastructure programme, but it signals that even the world's largest cloud companies will walk away from projects that cannot deliver power on time.
For the UK government, the episode is an uncomfortable reminder that attracting AI investment requires more than announcements. Without faster grid connections and more generating capacity, Britain risks watching major AI projects move to countries that can supply the one resource every data centre needs: electricity.
