The threatened energy crisis next winter could cause a flight of capital from the Republic, a confidential Government report has warned.

Industries dependent on quality power supply, including the information and communication technology sector, which employs more than 90,000 people, may begin to avoid locating in certain regions altogether, the report says.

The report, which has been seen by The Irish Times, says many areas of the State face high risks of unplanned electricity outages due to transmission system weakness. It was compiled for the Department of Public Enterprise by DKM economic consultants. In addition, depleted gas supplies and inadequate generating capacity for electricity are increasing the risk of unplanned outages this winter and next, the report says.

"The risk of unplanned outage this current winter is markedly higher than it was in the peak of January 2000 and that risk will increase sharply again for the winter of 2001/2002," it says. The report warns that a failure to invest in generation and transmission facilities over the next few years would lead to social and economic dislocation.

"Clearly a lack of action in relation to the serious energy situation in which the economy now finds itself will result in a flight of digital capital to economies where reliable and secure telecommunications and energy supplies are guaranteed," it says.

However, upgrading the transmission network and investing in more capacity will take time. The national electricity grid, Eirgrid, faces lead times of about seven years due to planning, legal and construction processes, says the report.

Areas particularly at risk include the Cork region. The report says delays in major electricity projects mean it would be very difficult for ESB to accept large new loads such as data centres.

Data centres are warehouses that house sophisticated technical equipment for managing computer networks. These centres are crucial to the Government's plan to make the Republic the e-commerce hub of Europe.

At least 22 centres are planned for the Republic, which will bring in more than $1 billion (€1.1 billion) investment to the State but so far only two of these projects are planned for areas outside Dublin.

Each centre uses an amount of electricity equivalent to a small town and therefore requires a lot of capacity and an efficient electricity infrastructure.

The report recommends speeding up liberalisation in the energy sector to provide extra generating capacity.

It should be done in a similar way to the telecoms sector liberalisation, it argues. That process was speeded up when the State was warned it could lose a major investment by Microsoft.

The report recommends amending the regulatory environment to allow the market to invest in relevant technologies including combined heat and power.

A review of the current position, in which Eirgrid operates but does not own the transmission system assets, should be undertaken. The report says this constrains Eirgrid's ability to speed up its capital programme.

The Government needs to address the situation where Eirgrid faces planning/ court delays of up to five years and is not allowed to engage contractors of its own choice, says the report.