A COMPANY has signed an agreement to develop the country's first commercial geothermal power source.

The news has prompted hopes that it can kick-start plans to develop a major eco-project in Weardale, County Durham.

Cluff Geothermal Ltd has signed an exclusive agreement with Lafarge to generate electricity by pumping naturally heated water from 3km beneath the former cement works at Eastgate, near Stanhope.

George Percy, managing director of Cluff Geothermal, said: "Eastgate is one of the best places in Europe to tap into these resources."

There are already two one km deep boreholes which proved it to be one of the country's best spots for natural heat generation.

The boreholes will be extended to 3km, a depth where the water temperature is expected to exceed 120C.

Mr Percy, 26, the son of the Duke of Northumberland, added: "This temperature is hot enough to generate electricity, and still support other heat uses afterwards, such as a hydrothermal spa."

It is expected detailed plans for geothermal development can be agreed between the two parties within six months - allowing operations to begin by the end of this year or early 2012.

Outline planning permission was granted in 2009 to create Eastgate Renewable Energy Village, complete with homes, businesses and leisure facilities.

Almost £2m was spent developing the scheme - dubbed eco-Disney - which was expected to create 350 jobs and reverse Weardale's economic decline.

However, it was shelved after the government cut almost £1m funding to regional development agency One North East.

Lloyd McInally, Lafarge's project manager for the Weardale Works site, which closed in 2002, said: "The signing of this agreement is a landmark moment, marking the revitalisation of the process of creating the Renewable Energy Village.

"We remain committed to achieving a beneficial, long-term use for the site - a legacy for the people of Weardale."

He added that Lafarge hopes to make a significant announcement soon in connection with a company locating to the Renewable Energy Village.

"We want to find companies and operations that can make good use of this cheap, green energy."

Mr McInally added that it was also hoped there would be developments on proposals to generate electricity on the site using biomass methods.