The plant will pump hot water four miles underground to St Andrews to heat and cool its labs and residences.
Work is set to start on the Sustainable Power and Research Campus (SPARC) site next year with the Renewable Energy Centre complete and operational by December 2015.
University Quaestor and Factor Derek Watson said: “Guardbridge represents a major strategic step for the University. We are committed to becoming carbon neutral and this large industrial site lends itself to the creation of a range of renewable energies which are vital to our efforts to remain one of Europe’s leading research institutions.
“There is also an ideal opportunity to establish a Knowledge Exchange Centre for spin-out, local companies seeking affordable accommodation and for prototype testing.
“We believe the diverse range of potential uses at Guardbridge has the capacity to re-establish this huge site as a key economic centre in Fife.
“We will consult closely with the community as our plans take shape.”