The ESB has suffered a major setback with a €750 million contract in the US falling through.

The contract to operate an electricity network comprising 10 per cent of the US market was one of the biggest projects to involve ESB International, the company's overseas subsidiary.

ESB International said it was disappointed as it would have successfully delivered the project, but it had not lost any money on the contract to date. Events outside its control had resulted in the contract being suspended, it added.

It recognised that since its selection as preferred bidder, the US electricity market had undergone significant changes. It pointed out that the forthcoming US Energy Bill would not, as had been anticipated, oblige electricity companies to join regional transmissions systems like the one ESB hoped to manage.

Described last November by ESB chief executive Mr Padraig McManus as a "huge vote of confidence" for the company, the loss of such a potentially rich revenue source is a significant blow.

While the €750 million was turnover, the profit from the project would have been significant, electricity sources said last night.

However, a spokesman said ESB International would study other opportunities around the world and plans were afoot to build a new power station in Britain.

A spokesman said: "Though disappointed, ESB International has gained considerable experience from its involvement, for which it was fully compensated. In addition, ESB International notes that the sponsors believe the work that has taken place could serve as a road map for further developments. ESB International will now be working with the sponsors to explore other alternatives."

The contract, known as SeTrans, involved the ESB managing a regional transmission organisation in the US for a five-year period.

SeTrans would have covered Georgia, Alabama, Louisiana and parts of Mississippi, Arkansas, South Carolina, Texas and Florida. ESB would have ended up managing a system with over 85,000 kilometres of transmission lines and 73,000 megawatts of power capacity. This contrasts with about 5,000 megawatts in the Republic.

ESB International was selected as preferred bidder after a worldwide competitive process. The outcome of the process was regarded as a coup for the ESB because its attempt to purchase a cluster of eight supply companies in Poland was blocked by the Government within hours of the deadline for a binding bid. The Taoiseach described the project as "too risky".

The sponsors of SeTrans said it was highly unlikely state and federal agencies would lend their support to the project.

A statement said: "While we are suspending our efforts, we believe that the SeTrans proposal contains much valuable work and could serve as an ultimate road map for future efforts in the region.

"Suspending our efforts on SeTrans will allow sponsors to explore other alternatives that achieve the goals expressed, and also enhance the likelihood of receiving support at both state and federal levels," the statement added.