As for the fire itself, you mention an entity. I was personally thinking the fire might be a heatmap, for which we have some technologies in place. I think this approach might help with computation.
Say every in-game hour (i.e. not that often) the temperature heatmap is checked up on by the game. If at any place the temperature exceeds the combustion-temperature set by a variable in the json of each object, the item will be aflame. Given extreme temperatures, maybe even metals can burnWhen it has been ablaze for long enough for its health to deplete, it might go through some stages of disrepair (using the evolve command used for rotting food) before burning up to either nothing or ashes. The fire itself then feeds back into the heatmap ala appeal to make it hotter in it’s surroundings.
And now I think of it, there might be even more options. I am not sure it is possible, but I am specifically referring to this post from @paulthegreat. A connectivity service can meybe be used to transfer fire from item to item in between the ingame hour that it takes to do it via the temperature heatmap. This should then combine into a system that is light on the PC and mostly dormant when ther is no fire. I hope.
Although having said that, the idea of an actual fire entity pretending to be a living thing with eyes, hungrily ravaging the landscape, that does appeal to me. Maybe even a combination of systems can be an idea.