Resource consent commissioners have approved a hydro-electric power scheme using waste water from the Stockton coal mine in Buller.
Hydro Development Limited plans to divert and dam acid mine drainage from Solid Energy's open-cast mine.
Tunnels will channel the water through two underground power stations, which will generate about 25 megawatts of electricity.
The project has been supported by environmentalists, who say its impacts are minor compared with Meridian Energy's proposal to dam the nearby Mokihinui river.
A decision on the Meridian project is expected in the next month.