The ESB's participation in what will be the Republic's biggest wind energy farm is in doubt because of the State company's dominance of the electricity market.
The ESB and fellow State-owned business Bord na Móna are planning to develop a wind farm at Bellacorick in Co Mayo, where up to recently the former operated a peat-fired electricity generating station.
The wind farm will be on Bord na Móna land and Mayo County Council has already granted planning permission for the project, which is likely to require an investment of €300 million.
It will have 180 wind turbines, and capacity to generate 325 mega watts (MW) of electricity - enough to power roughly 32,500 homes at peak production although, on average, its output would be closer to half this figure.
However, while both companies are working on the project, The Irish Times understands that concerns over the fact that the ESB is the State's dominant supplier could jeopardise its participation in the project.
The Government has an effective veto over both companies' participation, as it will have to give its approval before either of them can invest in it, or raise the cash needed to do this.
Bord na Móna has already discussed the project with the Department of Communications, the Marine and Natural Resources.
However, Government sources said that the department has signalled to Bord na Móna that it has serious concerns over the ESB's participation because of the latter's near monopoly of the electricity market, and may not be able to approve its participation.
"They [ Bord na Móna] have been told that they should be mindful of Government policy, particularly in the area of increasing competition rather than adding to existing near monopolies," one source said.
The department has commissioned accountants and consultants firm Deloitte to carry out a review of the ESB's position in the electricity market.
The consultants are due to deliver their report by December, and the Government will then decide what further steps it will have to take to reduce the ESB's dominance.
The Government came under fire two years ago when the then minister for communications, marine and natural resources awarded an estimated €37.3 million of a total of €58 million worth of alternative energy contracts to ESB subsidiaries and joint ventures.
Bord na Móna, which is responsible for the State's peat bogs, is keen to reposition itself as an alternative energy provider, and has won initial Government approval for moving into this area. It already operates what was the Republic's first wind farm on a smaller site at Bellacorick.
It is likely to continue to pursue the project, but may have to find a new partner for the project, presumably from the private sector, or else raise the funds to develop it on its own. Its current borrowing limit is €127 million, but the Government has pledged to increase this where appropriate.
