Eni, advised by JPMorgan, is looking to sell a stake of up to 49% in Enipower in a deal that could value the business at up to 1.2 billion euros ($1.4 billion), one of the sources familiar with the matter said.
The sale is expected to be wrapped up by the end of the first quarter, the source said.
BlackRock also studied a bid for the asset but a source close to the discussions said the fund's interest had cooled.
The companies all declined to comment.
Enipower, one of Italy's biggest power producers, runs five gas-fired plants and one co-generation plant in Italy with an overall capacity of more than 5 gigawatts.
As concerns about climate change push economies toward a lower carbon future, investing in fossil fuel assets is seen by some as a riskier bet than it used to be.
Eni, which has pledged to be carbon neutral by 2050, is selling the stake to help fund its shift away from oil and gas into cleaner businesses.
The group has merged its retail and renewable businesses and is planning to list part of the unit this year in what could be one of Italy's biggest IPOs of the year.
($1 = 0.8766 euros)
(Reporting by Stephen Jewkes; Editing by Mark Potter)
By Stephen Jewkes and Pamela Barbaglia