The current structure of the energy market is not working and the Government must adopt a new approach to ensure security of supply at a reasonable cost, according to IBEC, the employers' group.

If the situation is not urgently addressed, it could lead to a "flickering lights" scenario over the coming years, IBEC warns in a new policy paper on the sector. Also, IBEC is concerned at the rising cost of energy to business, with prices increasing by 24 per cent over the past two years.

The Irish market has been gradually liberalising over recent years. However Mr Brendan Butler, IBEC's director of enterprise, said that the current model of liberalisation "has failed to deliver the required generation capacity, nor has it delivered effective competition in this market." This has led to the "worse of all worlds" he claimed, with rapidly rising costs and insufficient generation capacity.

A recent IBEC survey indicated that energy costs had risen by a cumulative 23.9 per cent over the past two years , compared with an estimated increase in inflation of 8.5 per cent over the same period. Meanwhile the threat to energy supply had been highlighted by the requirement to hire additional generation capacity for each consecutive winter since 2000.

IBEC says there is an urgent need for a policy framework and supplementary regulatory arrangements to ensure the augmentation of current level of generation capacity. It is imperative that the two new generating plants recently approved by the Commission for Energy Regulation are in operation by the agreed time of 2005, it says. Investment in the electricity network is also necessary.

There is no "quick-fix" to restructuring the market, IBEC says. In the light of these developments, IBEC is calling on the Government to develop "a clearer, more coherent and strategic national energy policy", which should facilitate the future creation of an all-island market.