Arkhangelsk Region - the coldest inhabited area in Europe - is lacking mineral fuel reserves. Power consumption higher that the average and high prices for heat and electricity make any production unprofitable and incompetitive, leading to decline in traditional industries and outflow of population. Our calculations showed that the region has vast reserves of renewable biofuel able to satisfy half of the demand for imported energy resources: coal, fuel oil, and gas. Consumer properties of different wood fuels vary greatly in price and quality. Therefore, their effective use requires a clear regional policy, as is the case with our neighbours in Finland and Sweden, who have managed to make them equally attractive to both investors and consumers. The paper presents the methodology and calculated cost price for heat production in boiler-houses using various local wood fuels. In addition, it compares the performance of boiler-houses using the most expensive and the cheapest imported mineral fuels: fuel oil and coal. Wood chips and coal guarantee equally low cost price for heat (579 and 682 roubles per Gcal), while wood pellets and oil - equally high cost price of 1,243 and 1,197 roubles per Gcal respectively. Lumber waste (chips and bark) provide a minimum cost price of 356 roubles per Gcal when burnt in the locality. Thus, a rational policy of small-scale power generation includes the following: 1. use of lumber waste in industrial boiler-houses and mini-CHPs at saw mills; 2. extensive use of wood chips in boiler-houses of the settlements located in logging areas; 3. in order to develop the full potential of renewable "green" energy we need to establish export prodiction of wood pellets and charcoal, as well as energy and chemical processing of wood waste.
