The Donside Hydro project is being developed by Aberdeen Community Energy (ACE), a community benefit society set up by members of the Donside Community Association (DCA).
Construction is scheduled to begin in late May 2016,
It will be built on the site of the former Donside Papermill in the Tillydrone area.
The scheme is expected to generate around £30,000 each year for community initiatives with enough electricity to power approximately 130 homes annually.
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It will draw water from the River Don to create renewable electricity, which will be sold to the national grid.
Surplus profits will be placed into a community fund to achieve social and environmental benefits for local, deprived communities.
Sinclair Laing, Founding Director at ACE, said: "We are very excited to have reached such an important milestone in the project.
"The Donside Hydro will help Scotland on its journey towards 100% renewable electricity by 2020, and it will also create a sustainable community that truly works for its inhabitants and riverside setting. We're already working closely with members of the Donside and Tillydrone areas to identify priorities for the community fund, with our immediate focus being on improving the riverside for public use.
"We're also looking at the longer term outcomes, and have set up a social enterprise called Sinergy that will route surplus income into projects that will deliver sustainable benefits for the wider area."
(LM)
