NB Power president Gaetan Thomas made the announcement Thursday, saying the decision comes following a two-year review.
"NB Power has concluded a thorough review of alternate fuel sources and the cost effectiveness of electricity production from Dalhousie was no longer economically feasible," he said.
Acting Energy Minister Craig Leonard said the provincial government examined all options in an effort to keep the facility open but decided that wouldn't be in the best interests of the public nor the business sector.
"There was only about 12 years of useful life left on the plant and to have to refurbish it on a capital basis didn't leave enough time to recoup those costs," Leonard said.
"Obviously as a result of that, the energy that would have been produced out of the plant would not have been competitive."
A full environmental impact assessment will be conducted before NB Power begins to decommission the site. Thomas said it is expected that the decommissioning would take about four years.
The 25 workers at the plant will continue to work during the decommissioning, the Crown company said.
Thomas said some of the employees are nearing retirement in the next few years, while others will be reassigned to other facilities.
The station began generating electricity in 1969 and has a capacity of 300 megawatts.
The announcement is another economic blow to Dalhousie, a community of 2,500 people that saw the closure of a large newsprint mill in 2008, resulting in the loss of more than 300 jobs.
Mayor Clem Tremblay said he has been bracing for the news but is pleased to hear the utility will continue to pay property taxes during the decommissioning.
"The minister and NB Power and the government are ensuring the people of Dalhousie that the town could operate their budget for the next four years on a very positive note," Tremblay said.
"This is very good news because $1.6 million out of your tax base year after year would have hurt the people of Dalhousie."
Leonard said the Economic Development Department will work with the town in an effort to stimulate new economic growth.
Tremblay said he was hopeful something could be found before the end of the four-year period.
Donald Arseneault, the Liberal finance critic, said the closure was just the latest broken promise of Premier David Alward.
"During the last election campaign David Alward went to the gates at NB Power, held their hands and told them he would keep it open," Arseneault said. "He chose politics instead of being honest with them."
But Leonard was quick to defend his government.
"The premier's commitment to the people of Dalhousie was that we would leave no stone unturned to find an economical option to continue the plant," said Leonard.
"We've taken two years now to go through every single option."