The Government will undertake a fundamental review of its energy policy over the next six to nine months that will consider the options of selling or breaking up the ESB.
In an interview with The Irish Times, the Minister for Communications, Marine and Natural Resources, Mr Dempsey, said his Department would shortly begin a "full-scale" review of the energy market that would seek to identify policies to ensure good value for money for consumers and the security of energy supplies into the future.
He said the review would investigate the dominance of the ESB in the electricity market, and evaluate a range of options on the future of the State electricity firm.
These would range from selling the whole company through to a partial sale or the breaking up of the firm into smaller companies, said Mr Dempsey, who was in Hong Kong yesterday on the Government's trade mission to China.
The review will also consider whether the Government should continue to support renewable energy projects with financial incentives and increase its "green energy" targets.
"The options the review will look at for the ESB are leaving things as they are currently and changing its structure and ownership. Leaving everything as it is now is at one end of the extreme, and selling off the firm is at the other end of the extreme, and there are various options in between," he said.
"Realistically, the conclusions lie somewhere in between the two extremes."
Mr Dempsey said the options would also include a full sale of the ESB with the retention of a golden share owned by the State. However, this model had become less effective in recent years.
He said his Department would shortly appoint external consultants to undertake a study of the energy market, and his Department would also evaluate separate research due to be published by the ESRI on the energy market later this year.
"There is no doubt that, at the moment, the ESB is the dominant player. The reality at the moment is that we need competition, and there is a necessity to liberalise the market due to EU directives. I don't think we have a choice," said Mr Dempsey, who added that the review would be the first clear statement of policy for the energy sector in almost 20 years.
Mr Dempsey also indicated that he wanted to support alternative energy providers as much as possible, and favoured increasing Government targets on the supply of alternative energy in the Irish market.
"I personally take the view that we have to be a lot more ambitious over the next 20 to 25 years, and that will be in the context of a new energy policy. The danger to oil supply and possible price rises mean that we have to have a very strong alternative to oil and natural gas."
The Government has set a target of 13.2 per cent for the amount of energy coming from renewable sources by 2010. To help achieve this target, it has offered "green energy" projects financial incentives, which are later repaid by consumers through a public service levy to the ESB.
Mr Dempsey said the energy review was not being carried out with the abolition of financial incentives for the "green energy" sector in mind. The Government needed to take a decision on the subsidies based on a much longer time scale, between 20 to 25 years, than its current 2010 renewable energy strategy.