Southwark Council and Veolia have agreed the details of a low carbon district heating system that would be the biggest in London.
The proposed scheme would see heat from the South East London Combined Heat and Power Plant in Deptford piped directly to boiler houses that serve almost 3,000 homes.
Southwark Council believes the project could save up to 10,000 tonnes of carbon each year, as well as slashing energy bills for leaseholders and council tenants.
Properties on the Rouell Road, Keetons, Four Squares, Pedworth, Abbeyfield, Silverlock and Tissington estates in Southwark would directly benefit from the project.
A previously proposed route which took in part of Southwark Park has been dropped after listening to the concerns of local people.
Southwark will not be required to make any up-front financial contribution to the project but would instead sign a long-term contract to buy the heat at a guaranteed lower price than the conventional energy market.
Southwark cabinet member for environment and recycling councillor Barrie Hargrove said: “This is an exciting and pioneering project which has the potential to provide cheap and renewable energy to thousands of homes across Southwark.
“We’re making good progress in our negotiations with Veolia Environmental Services and I’m pleased to say that say that we’ve agreed the proposed route for the scheme’s pipe work which now avoids Southwark Park altogether.
“If given the green light, not only will this scheme deliver savings to local taxpayers but it would also help the environment by cutting up to 10,000 tonnes of carbon a year.”
Subject to further negotiations the council hopes the scheme will be operational by 2013.