Three coal-fired boilers heat the Forth St polytechnic buildings and the university College of Education.
Otago Regional Council consents to operate the boilers expire in May and one of the options the polytechnic is considering is installing a smaller woodchip-fired or oil-fired system catering only for its own facilities.
The cost of new boilers could range from $1.5 million for a smaller system to $3.45 million to replicate the current system, polytechnic chief operating officer Philip Cullen said in a report.
Negotiations with the university would take place between now and July to discuss whether the university wanted to continue the joint arrangement and, if so, how much it might contribute to the capital upgrade and annual operating expenses, he said.
While the university was contributing $15,000 a year now to the operation of the boilers, an energy consumption meter installed last year showed the College of Education was taking upwards of 50% of all energy generated, he said.
"This percentage has risen over the past five to seven years as energy efficiency programmes have achieved considerable reduction in energy consumption at the polytechnic."
Mr Cullen said one of the university's alternative heating options was to draw energy from the Forsyth Barr Stadium site, which is about 200m from the college of education campus.
University property services director Barry MacKay would not comment when asked how the college of education might be heated if the polytechnic boilers were not used, and how the university might draw energy from the stadium site.
In a statement he said: "We are currently considering several options, and it would be premature to speculate at this point. When plans have progressed, we would be prepared to report to you."
Mr Cullen said the polytechnic had originally hoped to convert the existing boilers to woodchip operation.
However, testing had shown emissions from woodchips, while "hugely improved" from coal, would still exceed emission limits by 50%.
The regional council had also advised that boiler conversions had been banned in some European countries because of evidence they were unsafe.
It was hoped replacement boilers would be installed between December this year and February next year.
