Harvard's worst financial nightmare has finally shown signs of ending during the past year. The Medical Area Total Energy Plant (MATEP) has by no means transformed into a dream come true, but the controversial diesel facility may become fully operational by late summer because of an unbroken string of regulatory and court victories over environmental and citizen activist since November 1980.

The facility has for years accumulated costs now estimated at $250 to $260 million-five times original projection in 1976. Citizen groups from Brookline and Mission Hill have caused most of the delays, fighting in court and in environmental hearings, first for an injunction against construction and later for tight controls over the pollution expected once the engines begin churning.

But following state and federal approval last year and a recent court decision upholding the federal go-ahead. Harvard officials say they are confident that the period of costly delays caused by community opposition is drawing to a close.

Attention has shifted to the installation and testing of the diesels, which have been stored for five years in a South Boston warehouse. Work on the diesel portion of the four-story plant-completely inactive during the interim battle-has become steadily more hectic.

During the day, about 30 employees install and tune the six mammoth engines, which each look something like a car engine one-fourth the length of a football field.

Following the daily work on tuning the engines, a smaller band of employees spends the evening preparing and conducting tests for the diesels, which must satisfy 32 rigorous operating conditions mandated by the state. The conditions are designed to prevent emission of dangerous nitrogen dioxide above specified levels. MATEP officials expect to finish the process by August, allowing a late-summer or early-fall opening of a plant that will provide the steam, chilled water and electricity needs of the Harvard Medical Schools and its nine affiliated teaching hospitals.

The plant has successfully provided water and nearly for nearly two years.

The controversial diesels are MATEP's key component. Under a process known an "co-generation," hot exhaust from the diesels will be used in the steam and chilled water portions of the plant, and planners originally predicted overall energy average savings of 30 to 40 percent.

Harvard officials no longer anticipate those huge savings from MATEP but still expect more cost-effective production.

Vice President for Administration Joe B. Wyatt said last week. "The plant is not going so represent a financial drain" when it begins operating. Although Wyatt declined to make projection on when-if ever-NATEP would begin to cat away the huge red splotch it created on Harvard's general operating account, the prospect of cheap diesel power indicates that the debt will not grow so rapidly in the future.

While Harvard officials cautiously begin discussing actual production at MATEP, community organizers are waiting for the results of a final appeal of the state's environmental approval for the diesels now before the State Supreme Judicial Court. The opponents are optimistic that they will at least get several concessions in the form of fighter regulations.

Regardless of the court's ruling, the opposition movement has begun to shift to a watch-dog stance, accepting an operating plant as a reality but refusing to believe that it will be safe. Dr. John G. Hermos, co-chairman of the NOMATEP coalition, said recently. Hermos added that his group will mount a new campaign of monitoring pollution levels in amassing related data in hopes of pressuring state authorities to enact new restrictions on the plant.

"We can only actually protest when there are specific episodes to protest," Hermos explained. Though the protestors "fight must now become increasingly technical, their severe resentment of the University's action shows little sign of dissipating.

David Rosen, Harvard's MATEP spokesman, said he believes a "good will" period began this spring after several meetings with Brookline citizens and an agreement to launch a beautification project for a pollution monitoring area on Route Nine and Chestnut Hill Ave.

In what he called another example of cooperation with the community. Rosen said all data collected from these monitors will be forwarded to a Brookline selectman, Daniel G. Tartin.

Community activists charge, however, that Harvard plans to withhold vital statistics, and they also discount the sincerity and breadth of Harvard's overtures for reconciliation Michael Lambert, a prominent Mission Hill activist, said that Rosen's estimation of "good will" is "absolutely, positively not the case."

Hermos described the continued battle as having shifted focus but predicted that "on a longer haul, it's going to go on well beyond my lifetime