A credible carbon-price path can strengthen the incentive to retire Europe’s fossil power plants. A new working paper modelling 850 European plants finds that, under its assumptions, retirement becomes financially preferable at carbon prices below recent EU allowance prices. This is a modelling result, not a forecast of imminent closures.
What the research finds
Imke Rhoden’s paper, submitted to arXiv on 5 October, examines the operator’s repeated choice between continuing to generate and permanently retiring a plant. Carbon-price uncertainty raises the modelled retirement thresholds by roughly a tenth, even when the expected price stays unchanged. Closing removes the option to benefit if carbon prices subsequently fall.
The model also finds that fuel costs can determine the order of retirement: less carbon-intensive generation does not necessarily survive longer. The commercial margin available to absorb carbon costs matters alongside emissions intensity.
Why it matters for European strategy
For operators reviewing asset-life assumptions and replacement investment, the strategic implication is to test the durability of carbon costs alongside the plant’s other revenues and obligations. A high allowance price alone is insufficient evidence that a particular plant will close. For organisations planning power procurement, that distinction argues for testing several retirement scenarios rather than treating a modelled threshold as a closure date.
Limits of the evidence
This is exploratory research. Its illustrative calculation holds electricity prices at €80/MWh and uses fuel-level operating assumptions. It excludes capacity payments, scarcity revenues and the effect of plant exits on electricity prices. Those omissions could materially alter commercial viability and retirement order. The paper therefore provides a framework for interpreting incentives, rather than a timetable for Europe’s fossil phase-out.
What would change the assessment
- Electricity and fuel margins: higher electricity revenues or lower fuel costs would increase the margin available to absorb carbon costs, weakening the case for retirement at a given allowance price.
- Revenue for remaining available: material capacity payments or scarcity revenues would weaken conclusions drawn from generation margins alone and could change which plants retire first.
- Carbon-price credibility: greater confidence that carbon costs will persist would reduce the value of waiting for a reversal, strengthening the retirement incentive even without a higher expected price.
Source: Optimal Retirement of European Fossil Fuel Power Plants and the Cost of Delay – arXiv working paper, version 1. Read the full paper.
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