The Commission for Energy Regulation has reached agreement on a package of measures to reduce the ESB's dominance in power generation by 2010.
Under the deal, the ESB will shed around 30% of its current generation capacity.
Energy Regulator Tom Reeves said the agreement was a major step towards developing competition in the Irish electricity market.
He anticipates that by 2010, the ESB's share of the all-island generation market will have fallen to around 40%.
Under the deal, the ESB will immediately sell or close plants representing 1300 MW of capacity.
These include Rhode in Co Offaly and Tawnaghmore in Co Mayo.
The former Shannonbridge and Lanesboro stations will be offered for sale to independent generating companies to construct new power plants.
Further sites must also be made available by 2010.
However, in exchange for implementing these measures, the ESB will be authorised to construct a new 400 MW power station at Aghada in Co Cork.
The ESB said it has already obtained all necessary planning permission to build the plant, but stressed that it still needs approval from the Government.
Davy Naughton of the Technical Electrical and Engineering Union urged the government to give that approval immediately, given predictions that without additional generating capacity, the country could face blackouts by 2009.
