Privately-owned Hydro Developments Ltd today received the green light for its "green" power scheme using polluted water from the Stockton open cast mine in Buller.
State-owned enterprise Solid Energy withdrew its opposition, meaning the two companies will no longer battle in the Environment Court.
In a joint statement, they said they had reached an agreement on using water from the Stockton plateau, northeast of Westport, to generate electricity.
"The agreement clears the way for HDL to progress its hydro-electric scheme at Stockton alongside Solid Energy's mining operation on the plateau," the statement said.
Solid Energy would provide HDL access to the land it required. HDL had agreed not to oppose any consent applications for water diversions Solid Energy may require to operate Stockton mine.
Both companies said they were looking forward to a more co-operative relationship in future.
HDL chairman Chris Coll said his company would soon start a $1 million geotechnical drilling programme at Stockton.
HDL would then finalise scheme design and costs, and seek funders for the $200m-plus project, he said.
The company was also negotiating land swaps with the Department of Conservation, which supported the project.
A corporate backer had previously expressed interest, but Solid Energy's appeal had been putting funders off. "Now we fully expect we'll get some approaches from funders."
HDL had spent about $1.2 million on the project so far.
Mr Coll said the scheme would inject about $170m into the Buller economy and construction would employ around 50 on-site.
The scheme would produce around 240GWh of electricity a year - enough to power all of Buller including Solid Energy and Holcim Cement's operations.
As a result of today's agreement, Solid Energy and HDL will abandon their appeals of each other's Stockton schemes.
However, Solid Energy will continue its appeal to the Environment Court against being refused resource consent for its own scheme.
"We thought our scheme was viable and do-able, and we need to finish that process," said Solid Energy communications manager Bryn Somerville.
However, HDL's consents would take priority regardless of the outcome of the appeal, he said.
HDL is owned by geologist Ant Black and the Coll Family Trust of Westport, Brian Kidson of Nelson's Kidson Construction, and John Easther of Wellington, who manages the project.
Both Solid Energy and HDL said they had not discussed the possibility of a joint venture project on the power scheme.
The Green Party today welcomed the agreement between the previously warring companies.
"Finally, we have a breakthrough for smart new power generation on the West Coast," said conservation spokesman Kevin Hague.
"The green light for the power scheme at Stockton leaves Meridian's proposed power scheme on the Mokihinui River redundant, saving a pristine river valley from destruction."
Meridian Energy's consent to build an 80-metre high dam on the Mokihinui River and inundate 300ha of land is being appealed to the Environment Court.
