Warrnambool's sewage outfall at Thunder Point will need to extend up to a kilometre into the ocean by 2030 as part of a major upgrade at the Wannon Water site.
A revised version of the water corporation's $40 million plan for the sewage site can now go ahead after it received Environmental Protection Authority approval on Friday.
A community campaign took issue that the plant's capacity would increase by 50 per cent without major technology upgrades to improve treated water quality before it reaches the ocean.
The campaign followed evidence of the sewage plant occasionally failing in the past year when treated brown solids flowed into the ocean near the shoreline.
A 15-month long EPA licence application process has concluded the outfall must extend away from the shoreline into deeper water by June 30, 2030.
The EPA said the shoreline discharge point was a "legacy of past practice" and the extension would reduce the size of the current mixing zone due to dilution occurring quicker.
"The new outfall could be as much as a kilometre out to sea," EPA development assessments manager Steve Adamthwaite said in a statement.
"The upgraded plant will also be subject to licence conditions that tighten the limits for suspended solids, nitrogen, phosphorous and ammonia compared to the current plant."
Campaigner Colleen Hughson said the conditions on the works were welcome news.
"We are pleased that the EPA have taken our community concerns regarding water pollution, environment impacts and human health impacts of the shoreline outfall seriously," she said.
She said the proposed extension of the outfall pipe would mean there was no chance of someone becoming seriously ill from contact with the bacteria and pathogens in the wastewater.
"Discharging offshore may also give the limestone reef in which the wastewater is currently discharging onto a chance to recover," she said.
Wannon Water managing director Andrew Jeffers welcomed the EPA approval and said construction at the plant would occur before any extension to the outfall.
The commencement of work on the project has been delayed by about 18 months and Wannon Water will now begin a tendering process.
"After we finish building the plant and provide the services our region needs, particularly our meat and milk industries ... we will then get in and do that work about what is the appropriate ocean outfall length," Mr Jeffers said.
He said the exact length of the future outfall extension would be determined in the next five years.
"That is a requirement for us to do unless there is some significant change or reason why that can't be achieved," Mr Jeffers said.
Early estimates for the outfall extension put its cost between $15 million and $40 million, Mr Jeffers says.
Ms Hughson has pushed for the plant to recycle water. Wannon Water has not ruled out the option, but has said class-A tertiary treatment could cost between $30 million and $40 million and the current upgrade was required as a "first step".
Mr Jeffers said recycled water could potentially be one option that would change the EPA's requirement to extend the outfall out to sea.
"We will put all further options on the table," he said.
The water corporation will build two new tanks to accompany its four existing tanks, and improve inlet and outlet screening.
The project will take two years to construct and create 122 new jobs. Wannon Water says the upgrade is needed because the plant, which receives 50 per cent of its wastewater from industry, is at capacity.
"The community should feel assured the facilities proposed there are in the community's and the environment's best interests," Mr Jeffers said.
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