E.on, one of the world's largest energy companies, has told the Government that private-sector investment in the electricity sector is unlikely because of the ESB's power and the risk of political interference in the market.

The German company, which has a market capitalisation of more than $84 billion (€65 billion), has told the Department of Communications that the Government needs to do more to attract potential investors. Its UK subsidiary made a submission to the department following the publication of an energy Green Paper by Minister for Natural Resources Noel Dempsey.

Because the Irish market is relatively small by European standards, E.on believes investors need firm reasons to take an interest.

While not referring directly to the ESB group, which has 19 power stations, its submission talks about the position of the "incumbent", which is the ESB group in the Republic.

"We believe the Irish Government needs to encourage an investment climate in energy that is attractive to potential investors compared to the rest of Europe. However, this will be difficult whilst there remain concerns about incumbent market power, and the possibility of direct Government intervention in the Irish energy market remains a risk."

Mr Dempsey has made it clear over the past year that key assets such as the electricity distribution system will not be sold into private hands. He has said that the ESB is not "atomised".

However, E.on does not support this position. Its submission states: "E.on UK does not therefore support the principle that 'certain strategic electricity assets remain in State-ownership for the long term'. Whilst this is the case, direct Government intervention in the market, both operationally and functionally, remains a real possibility and will act as a disincentive to potential private investors as the business case for investment is eroded by perceived political risk."

The submission claims there are other ways the Government can encourage competition apart from selling assets into private hands. The submission says the Government should consider moving towards more integration with the UK market as an effective means of increasing competition, while also ensuring security of supply.

"We welcome the focus on the goal of an all-island market, but attention should also be given to the longer-term aim of creating the right conditions, through increased interconnection and compatible trading arrangements, for fuller integration with the UK, the wider Ireland, Great Britain and the French market," the submission says.

It avoids commenting on the price of power in the Republic, but the company expresses its belief that "competitive markets are the most efficient way to attract the required investment in energy, whilst creating the best value for consumers".

The Department of Enterprise, Trade and Employment has also made a submission, in which it points out the scale of recent energy price increases: "Policy should not overlook the importance of market change in bringing short-term and durable benefits to domestic consumers."