Thanks for the detailed response, the axle is 12x10 btw.Its not that clear from your post whether your axle is 12 X 10 or 14 X 12. Anyhow I once fitted a Bafang geared hub with 12 X 10 axle to a similar 'semi horizontal' dropout type Apollo hybrid bike.
I removed the derailleur from the dropout and pushed the motor fitted with the anti rotation washers right back to the rear end of the dropout. I modified the derailleur hanger by discarding the screw fitting and semicircular nut thingy that normally takes up room in the dropout. I also ground flat the indent/rise that on the inside of the hanger and deepened the hanger slot.
The derailleur than is just held with its deepened slot in the axle and pinched between the bike frame and the nut. It wont turn. A washer between the nut and derailleur is desirable. You need to keep the derailleur hanger pushed home as you tighten the nut.
This works well but there is one drawback and that is that you have to be careful when you remove the wheel not to get the chain in a knot as the derailleur has nothing to support it (tends to turn from the springs) when the wheel is removed.
So if I'm understanding you what I should be doing is removing the derailleur and bolt and the cut nut on other side.
Then put in the hub/axle using the full dropout width (I like that idea!)
Finally put the derailleur on tight against frame, hold i place, then a washer then the axle nut. Forget about the bolt hole on the derailleur as the axle but will keep derailleur in place?
So this is how it is now and I 'lose' half the dropout width:
And this is what you are suggesting?