Reserve margin

The long-term balance of electric supply and demand in a specific market region is evaluated by looking at the reserve margin. The reserve margin is calculated as the total supply capacity in a region (supply can include generation, available firm imports from neighboring regions, available storage capacity, and firm demand response capacity) minus the peak demand, divided by the peak demand:

Reserve Margin =
Supply capacity – Peak Demand ÷ Peak Demand 

For instance, if a marketplace has 12,000 MW of supply and 10,000 MW of peak demand, the reserve margin would be: (12,000 — 10,000) ÷ 10,000 = 20%. 

Essentially, the reserve margin calculates how much extra supply is available in a given region above expected peak demand. This is important to ensure reliability during high demand periods, weather conditions resulting in loss of renewable generation, unexpected outages of transmission lines and/or power plants, and to provide sufficient capacity to allow for planned maintenance of transmission lines and power plants.

Although reference target reserve margins vary by region, a rule of thumb is that markets with reserve margins of less than 15% are considered tight. Those with margins between 15% and 20% are considered balanced, and those with margins greater than 20% are often considered oversupplied. Some regions now use a more sophisticated analysis that employs reliability simulations to determine what level of supply capacity is required so that daily system peak load is not likely to exceed available supply at any hour during the day more than once in a 10-year period.

Anticipated and reference reserve margins by region in North America:

Source: NERC 2019 Long-term Reliability Assessment