The Town of Norman Wells, N.W.T., is considering a wood pellet heating system with a price tag of $37 million.
Mayor Dudley Johnson says it won't cost local taxpayers.
"I don't want to see this come as an expense to residents or businesses, because it's not their fault that this has happened," he said.
The pellet system would replace the town's failing natural gas well, which is owned by Imperial Oil.
Sahtu MLA Norman Yakeleya said he's not sure if it's realistic to expect outside funding to cover the cost of replacing the town's whole system.
"It's still early in the play. I think once they sign agreements for these grants and tally up at the end of the day, how much money they can possibly receive, and then from there they would need to do some more calculations," said Yakeleya.
Scott Jamieson, editor of Canadian Biomass magazine, said the town's wood pellet system would be one of the largest projects to date in Canada.
"If Norman Wells were to go ahead with this, I think it would be a model community," he said.