"If used for high value products, geothermal heat could add millions to the local and national economy, growing industries in timber drying, aquaculture/tourism, horticulture and milk drying."
This work is a significant action from the Start 2 Steam Workshop held in Rotorua in May and also forms part of the Toi Moana Bay of Plenty Action Plan.
The project will be led by the region with central government support from the Regional Growth Programme.
Rotorua MP Todd McClay said it offered real opportunity for sustainable geothermal heating of more Rotorua homes.
"Geothermal energy provides a unique, special experience for the $800 million Rotorua tourism industry. It provides heating for homes, and powers businesses in our region. It is a clean, inexpensive, and safe renewable energy source."
Recent reports highlighted that only 5 per cent of the region's geothermal capacity was currently being used, he said.
"Rotorua has the most active geothermal field sitting immediately below it. The Government investment will help us to better harness this heat sustainably," he said.
"Increased investment and use of geothermal energy will drive value in the local tourism, energy generation, forestry, and agriculture sectors. This will in turn create more jobs for Rotorua's people, and keep the spotlight on our most important natural wonder."