|The capacity margin is the proportion by which the total expected available electricity generation exceeds the maximum expected level of demand at the time at which that demand occurs. It acts as an insurance against "occasional unexpected losses of power or surges in demand" and is normally expressed as the percentage calculated by:
Total available capacity can be defined in two ways:
1. In the past the gross capacity margin was calculated based on the total amount of electricity which could theoretically be generated at any one time.
2. Now the de-rated capacity margin is more commonly used. This is the average excess of available generation over peak demand. The de-rated capacity margin takes account of the fact that not all generation capacity will run at its theoretical maximum all of the time. This is particularly important for renewable generation, where the output at peak times can be considerably lower than the theoretical maximum. This metric de-rates each generation type by a factor reflecting the "statistically expected level of reliable availability from that plant type." Ofgem typically uses winter de-rating factors of:
· Coal/biomass: 88%
· Gas: 85-92%
· Oil: 82%
· Nuclear: 81%
· Hydro/pumped storage: 84-96%
· Wind: 17-24% 
It should be noted that gross capacity margins cannot be directly compared to de-rated capacity margins. As a broad reference, however, a 20% gross capacity margin, which was the typical aim in the past, has been likened to a de-rated capacity margin of 4-5%, although this would depend on the precise plant mix and the de-rating factors chosen. In this report we use the de-rated capacity margin unless stated otherwise.
Although National Grid and Ofgem still report on the capacity margin, Ofgem argues that the capacity margin is: "not a good indicator of risk, as it is an average value and provides no information about the variability around this average value." Therefore, another measure, Loss of Load Expectation (LOLE) is also used. As described by Ofgem:
"The LOLE is the average expected number of hours per year in which supply is expected to be lower than demand under normal operation of the system. This means the number of hours per year when we expect National Grid to have to use mitigation actions, including the use of the new balancing services. The LOLE is still not a measure of the expected number of hours in which customers may be disconnected as National Grid is expected to use other mitigation actions ahead of controlled customer disconnections."