EnergyAustralia has announced the company's exclusive agreement with Bettergrow Pty Ltd will be extended until June.
The initial four week period was granted to assess opportunities to repurpose the decommissioned Wallerawang power station site.
"Over the past month Bettergrow has demonstrated why it's the frontrunner to continue Wallerawang's 60-year history," EnergyAustralia Head of Mt Piper Greg McIntyre said in a statement released on Wednesday morning.
"We're really excited by the potential to transform Wallerawang into an industrial hub, as Bettergrow has done with disused mines and industrial sites in the past.
"Handing over the keys is a complex transaction and we are all working hard to make it a reality."
Mr McIntyre said the extension would allow negotiations to continue and for Bettergrow to continue to develop its plans. Arrangements will be reviewed again in June, and may be renewed on a recurring basis until a final investment decision can be made.
"Everything we've done behind the scenes with deconstruction and salvaging work to get the old Wallerawang plant ready for new industry is beginning to pay off," he said.
Bettergrow managing director Neil Schembri said it was hoped the project would deliver 203 jobs.
He said Wallerawang had "terrific potential as a 'green-spot' eco-industrial park that Lithgow and the broader region can be proud of and benefit from financially".
"We see this being home to our operations and shared with other sustainable businesses. For this to work we will retain the majority of the plant's existing infrastructure rather than it all being demolished," he said.
Lithgow City Council general manager Graeme Faulkner said the way the project was proceeding at this stage was pleasing, especially in light of the number of jobs projected.
He said, while there was no formal application for EnergyAustralia's demolition development application to be changed to retain more of the buildings at the site at this stage, the council remained hopeful that this would occur.
Lithgow City Council mayor Ray Thompson said it appeared the future of the site "was all coming together".
Cr Thompson and other Lithgow councillors have been outspoken in their advocacy for the development of an industrial park at the site.
"It's great news for the city," he said.
"The jobs - if they are talking about two or three hundred jobs - that's a shot in the arm for us. It's not what we lost, but it is the kind of thing that could draw more people to that precinct."
Mr Schembri said eco-industrial parks traditionally operated in co-operation, with one company's by-product becoming an important resource to one or several others.
"Establishing a rail-link and intermodal freight hub will be developed in the first stage to transport materials and reduce the number of trucks travelling on Castlereagh and Great Western highways each day," he said.