Optimal Retirement of European Fossil Fuel Power Plants and the Cost of Delay

Mitigation pathways require fossil power plants to retire well before the end of their technical lives, yet retirement decisions are typically derived from cost-minimizing system models rather than from the decision facing the plant's owner. This study investigates the carbon price threshold at which closure becomes more advantageous for an operator, as well as the ongoing costs associated with continued emissions. A finite-horizon Markov decision process is solved plant by plant for the European fossil fleet of 850 units, with a carbon price that moves stochastically and plants that age deterministically. The price process is constructed so that widening its range leaves the expected price unchanged, isolating the effect of uncertainty from the effect of price level. Closure thresholds fall below recent EU allowance prices for all fuels considered, and the sensitive range lies well beneath them, so further price increases are unlikely to be the binding instrument for retiring this fleet. Because fuel costs rather than emissions determine how much margin a carbon price must erode, the least carbon-intensive capacity retires first. Uncertainty raises the thresholds by about a tenth at an unchanged expected price: a credibly stable carbon price retires the same capacity as a volatile price roughly a tenth higher. Policy credibility therefore substitutes for price level.