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Developmental costs of turning lignite into urea fertiliser, briquettes for burning or diesel are in the tens of millions of dollars and are yet to be proved commercially viable.
The likelihood that Solid Energy will drop all its lignite development plans for conversion options has been welcomed by environmental group Coal Action Network Aotearoa (Cana).
Solid Energy has permits covering large swathes of farmland in the South, where it has been estimated there is 12 billion to 15 billion tonnes of lignite, and the company has a $29 million pilot lignite-to-briquette plant under commissioning near Mataura.
Solid Energy had recently sold its bioenergy business to management and had put 920ha of Southland farmland up for sale, BusinessDay reported.
Solid Energy chairman Mark Ford told Radio New Zealand yesterday the company would drop the lignite-to-briquette project.
''I think that [lignite use] is part of the non-core assets that we will be exiting from,'' he said.
Cana spokeswoman Kristin Gillies said the group was celebrating ''the end of the nonsensical lignite project'', which had been leading Southland in the wrong direction.
''This was a ridiculous project from the outset: dirty, low-grade coal being turned into a product nobody wanted, digging up prime Southland farmland for coal that would simply end up in the sky, adding to the looming climate crisis,'' Ms Gillies said yesterday.
Co-spokesman for Coal Action Murihiku, Dave Kennedy, said there would be ''a huge sigh of relief'' from the growing number of opponents to the project.
''Southland has so much to offer a green future for New Zealand, and we're very happy that the coal here will be left where it belongs - in the hole, and the fertile soil can continue to be productive for generations to come,'' he said.
He believed it was ''highly doubtful'' that the briquetting plant could be sold.