An energy firm is planning to make a �1bn bid to buy Britain's biggest power station, according to a newspaper report.

Energy group Innogy is reported to be interested in the Drax site near Selby in North Yorkshire, the Observer said.

The 4,000 megawatt station was owned by the Swindon-based company's predecessor National Power until it was bought by AES for �1.87bn in 1999.

News of the bid comes as the power station faces financial problems brought about by the slump in UK electricity prices and the termination of its most valuable contract.

Last week TXU Europe, which buys 60% of the power plant's output, reportedly told Drax it plans to end its 15-year deal in February.

The decision was understood to have been made after Innogy asked the High Court to wind up TXU Europe in a move interpreted by some analysts as a ploy to force an early sale of Drax.

The power station currently supplies around 5% of Britain's power.