The energy regulator has begun an investigation into wholesale electricity prices over the last six months after Airtricity, a wind energy company, indicated that it would be pulling out of the domestic energy sector. The company is remaining in the corporate sector.

Airtricity has about 8,000 domestic customers, but over recent months it has been forced to buy extra power from the ESB to supply them as well as its small and medium-sized enterprise clients. The company wrote to customers over the weekend advising them that they needed to find a replacement supplier or face considerable increases in prices. It blamed the Commission for Energy Regulation (CER) for "regulatory failure".

In order to meet the demand of its customers, Airtricity currently supplements the electricity generated at its wind farms by buying so-called "top-up" power from other sources, mainly ESB. This "top up" power can be very expensive.

"Airtricity has been subjected to high and volatile costs of power since August last year," the company said. "These costs averaged 43 per cent over the costs originally projected. Airtricity cannot continue to absorb these costs."

The performance and availability of ESB stations has also been criticised by Airtricity.

The company also said a moratorium on wind farm connections to the national grid had damaged the company and slowed down its development.

Last night, the CER rejected these claims, but said that it was conducting its own investigation into "why electricity market prices were higher from August 2005". This report is expected to issue later this week.

It is understood Airtricity has been engaged in robust discussions over recent weeks and that legal arguments have taken place.

A CER statement said: "The commission is examining in particular the impact of international fuel price increases and the effect which the availability of all generating stations on the system may have had on prices."

The CER also rejected the Airtricity claim about the wind moratorium.

"This moratorium, which was lifted in early 2005, affected only the issue of new connection offers. Airtricity had wind connection offers before the moratorium for four onshore wind farms totalling about 100 megawatts which were not effected by the moratorium, but which they are only now constructing."

The row between the CER and Airtricity comes as the Government considers the future of the whole energy sector.

A green paper on the sector is expected to be published over the next few months. A draft report from consultants Deloitte suggests that major reform is needed in the energy sector. It says the break-up of the ESB might need to be considered to entice in new players. Last year, ESB management floated the idea of selling off or leasing some ESB stations, but unions rejected this idea.