The Commission for Energy Regulation and the ESB have reached agreement on a package of measures to reduce the ESB's dominance in power generation by 2010.
Under the deal, ESB will either close or sell-off plants producing 1300 MW of capacity by 2010 - that is around 30% of its current generation capacity.
However, in exchange for implementing these measures, ESB will be authorised to construct a new 400 MW power station at Aghada in Co Cork.
Energy Regulator Tom Reeves said the agreement represents a major step forward in facilitating the development of competition in the electricity market in Ireland.
He anticipates that by 2010, the ESB's share of the all-island generation market will have fallen to around 40%.
The Regulator has also reserved the right to direct the sale of the Aghada plant if insufficient progress has been made to reduce ESB market share.
The ESB will immediately sell peaking capacity plants at Rhode, Co Offaly and Tawnaghmore, Co Mayo.
The sites of the former Shannonbridge and Lanesboro Stations will be offered for sale with immediate effect to independent generating companies for the construction of a new power plant.
The ESB must also make available other sites with a capacity of 300MW by the end of June next year and a further 700 MW by 2010.
