International Power, the troubled UK electricity generator, has warned that its profits for the current and next year will be hit by its exposure to its collapsed rival TXU Europe.

TXU Europe, owned by the US energy group TXU, was forced into administration last month after its debts reached more than �2bn.

But its collapse means the end of International Power's lucrative contract with firm, which was one of its biggest customers.

As a result, International Power will be forced to sell its power on the open market, and probably at a lower price than it had been selling to TXU.

Termination claim

International Power (IP) said its earnings would fall by �4.5m this year, or 0.4p per share, as a result of the broken contract.

It said it expects the cost to rise to �22m next year.

The contract was between TXU Europe and IP's Rugeley plant near Birmingham.

IP said: "The actual level of impact will depend on electricity prices achieved and the volume of electricity sold by Rugeley power station."

The news was a further knock to IP's share price, which has already lost almost 50% of its value since the start of the year.

The announcement sent them down a further 2% to 104p.

IP said it was taking legal action for compensation after TXU Europe's early end to the contract.

"(We) believe that structurally we are in an advantageous position to recover our termination claim," said the company.