⚠ The Whole Year Can Be a Handful of HoursHigh threat

In an energy-only market the difference between a good year and a bad one is weather. A hot Texas summer with tight reserves produces scarcity pricing and a windfall; a mild one produces neither, and the fixed costs of 44,000 megawatts continue regardless.

This is the mechanism behind Vistra's return-on-capital record: 1.0%, 2.3%, 7.0%, 4.9%, negative, negative, 9.5%, 13.8% and 5.6%¹. Two of nine years above an 8% cost of capital. Nothing changed structurally between those years; the weather and the power price did.

The energy-only design also means no floor. A capacity market pays a generator something for existing even in a year when the plant barely runs, which smooths the returns and makes financing cheaper. ERCOT pays nothing, so a Texas asset's value is entirely a forecast of future scarcity — and forecasts of scarcity are exactly what attract new entrants.

That is the loop that has historically capped merchant returns in Texas. Scarcity raises prices, high prices attract construction, construction relieves scarcity, prices fall. The current cycle has an unusual feature — the interconnection queue is slowing the response — but the loop has not been repealed.

The measure that matters is not summer weather. It is the ERCOT reserve margin over several years: whether new supply is arriving faster than the load growth everyone is forecasting.