The 164-year old business is majority-owned by Italy's state-backed lender Cassa Depositi e Prestiti (CDP) [CDP.UL] which is looking to realise part of its investment by launching an initial public offering (IPO) in Milan.
China's Shanghai Electric Group bought 40 percent of Ansaldo Energia in 2014 and has agreed to reduce its exposure after the Genoa-based company makes its stock market debut, the sources said, adding that CDP will significantly trim its 60 percent stake.
The listing could take place in the third or fourth quarter of next year depending on market conditions, the sources said.
Ansaldo Energia, CDP, Shanghai Electric and Rothschild all declined to comment.
The move to float Ansaldo Energia comes as CDP reviews its portfolio of well-performing assets and studies ways to realise value ahead of the possible departure of chairman Claudio Costamagna and CEO Fabio Gallia, whose mandates will expire next year.
It is also looking to resume plans to float payment services group SIA after previous attempts were aborted last year, the sources said.
The IPO proceeds from these deals could be partly used to buy a stake in oil firm Eni from Italy's Treasury as part of a bid to cut the country's sky-high public debt.
Ansaldo Energia was valued at about 1 billion euros ($1.16 billion) when Shanghai Electric took a 40 percent stake for 400 million euros in 2014.
Previously operating as a joint venture between state-owned defence group Leonardo and U.S. fund First Reserve, Ansaldo Energia makes gas and steam turbines and also provides thermoelectric power plants, with overall 2016 revenues of 1.2 billion euros and core earnings of 179 million euros.
Ansaldo has a strong presence in China as well as in the Middle East where it supplies turbines in countries including Iran.
In October, Ansaldo signed a memorandum of understanding with several subsidiaries of Iran's state oil company National Iranian Oil Company (NIOC) to convert flare gas into electricity at NIOC's South Pars Gas Field.
But the sources said Ansaldo's Iranian operations could raise concern among investors in the light of worsening relations between the United States and Teheran.
Rothschild was only recently appointed to work on the IPO plan and has yet to carry out an in-depth analysis of the "strengths and weaknesses" of the business, one of the sources said.
The bank, which has often advised state-owned companies and is currently leading the sale of ailing carrier Alitalia, will get the ball rolling on Ansaldo's listing in the coming weeks and will be responsible for the selection of global coordinators and bookrunners.
Ansaldo's boss Filippo Abba' took the reign of the firm earlier this year having previously spent 24 years at Foster Wheeler, a company he left in 2015 after it was taken over by Britain's Amec in 2014. ($1 = 0.8609 euros)
(Reporting by Pamela Barbaglia and Stephen Jewkes; Additional reporting by Kirstin Ridley and Elisa Anzolin; Editing by Hugh Lawson)
By Pamela Barbaglia and Stephen Jewkes