The break-up or privatisation of the ESB should be considered by the Government, an influential energy agency has recommended.

The International Energy Agency (IEA), which is linked to the OECD, said the State-owned ESB was still too dominant in the electricity market and this was putting off potential entrants.

In a wide-ranging review of the Irish energy market it also said a decision needed to be made soon on the future of Moneypoint in Co Clare, which is responsible for major carbon emissions.

The review said the Government should consider a series of long-term leases of ESB plant to other operators.

It said if the Government rejected this it could consider privatisation or possibly forcing individual ESB plants to compete against each other.

The other option might be to auction off "management rights" for individual plants.

However the executive director of the agency, Mr Claude Mandil, said the changes, apart from privatisation, did not necessarily have to mean State ownership ending. The agency said even if the ESB decreased its market share to 60 per cent by 2005, "the company would still be too dominant in the market".

It said international experience suggested a market needed four to five roughly equal generating companies before effective competition could take place.

It said the idea of plants under common ownership competing against each other had been tried successfully in New Zealand and Norway.

However the Minister for Communications & Natural Resources, Mr Ahern, launching the review, was more circumspect about the ESB's future.

He said the company had taken "impressive steps" to reduce its presence in the market and its future would be considered in "due course". However he said the concerns raised by the review would have to be addressed at some stage.

He said the point to be considered in debates about competition in electricity was the small size of the Irish market.

He said that while some companies were interested, this was a major obstacle. Mr Mandil agreed with this and said along with Luxembourg Ireland had one of the smaller electricity markets in Europe.

Mr Mandil said the issue of Moneypoint, which produces 900 megawatts of power, was complex. Put simply, the two options would be to shut it down or switch it away from coal to gas, he said.

However he agreed with Mr Ahern that closure was not an attractive option and even switching its fuel source posed problems.

He said using gas instead at Moneypoint would mean that 80 per cent of the Republic's energy requirements by 2010 would be met by gas.

"Such a heavy reliance on gas raises energy security concerns that will require time to address," he said.