Formerly known as Caithness Heat and Power (Chap), the district heating scheme was run by a community-run enterprise to help tackle fuel poverty.
Highland Council later took over the running of it and spent Â£11.5m trying to make it work before scrapping it in 2009.
Now run by a private firm, the scheme provides heat to about 200 homes.
NHS Highland said the hospital would be supplied with "low-cost renewable energy" by the heating plant's operator Ignis.
Eric Green, the health board's head of estates, added: "Connection of Caithness General Hospital to the district heating produces the best combination of security of supply, cost and environmental benefit.
"Not only does the proposal from Ignis have the added advantage of being more efficient, and will therefore save us money, but it is also much more environmentally friendly and will reduce our carbon emissions."
Energy Minister Fergus Ewing welcomed the move.
He said: "When I visited the biomass energy centre in Wick, I was delighted to hear that almost 200 houses were seeing a significant reduction in their fuel bills after switching to the heat network."
Craig Ibbetson, of Ignis added: "We are delighted that NHS Highland has approved our proposal to connect Caithness General Hospital to the district heating scheme.
"We are looking forward to working with them, and believe that this is a good development for the NHS and Ignis, and the wider community in Wick."
Last year, Highland Council was criticised for its handling of Chap.
In a report for the Accounts Commission, Audit Scotland said a "lack of good governance" when Chap was affected by technological and financial problems led to an "expensive lesson" for the local authority.
Caithness General Hospital in Wick is to be warmed by the town's wood-fuelled heating scheme.