The government says Springhill can tap into water sources at old mining sites in the area.
Officials estimate there's an estimated 49 billion litres of water there — the equivalent of about 19,600 Olympic-sized swimming pools.
The geothermal heat is absorbed by mine water, which can be as much as 11 degrees Celsius higher than normal groundwater temperatures.
The water would be pumped to the surface and its heat extracted for energy.
Mayor Maxwell Snow says the mine water offers a renewable and sustainable energy source for the town, and a way to move away from a reliance on coal.