diff --git a/docs/changelog.md b/docs/changelog.md
index 0308402..928e702 100644
--- a/docs/changelog.md
+++ b/docs/changelog.md
@@ -1,5 +1,33 @@
 # OSeMOSYS Change Log
 
+### Change of ReserveMargin Calculation
+The ReserveMargin has so far been calculated in relation to the TimeSlice with the highest demand. 
+However, often the time slices in OSeMOSYS models do not represent exactly one hour. Therefore this approach
+does not reflect the estimation of real world ReserveMargin calculation. 
+This commit changes the way the ReserveMargin in OSeMOSYS is being calculated. 
+By introducing the new parameter AnnualPeakHour the modeller needs to enter the demand of the hour with the 
+highest demand, if one wishes to have a ReserveMargin. Since one commonly has hourly demand data available 
+when modelling, determining the hour with the highest demand is not creating significatn additional work. 
+In the different code versions the following modifications have been made:
+**long**
+- added: 
+	param AnnualPeakHour{r in REGION, y in YEAR}
+- modified: 
+	RM1_ReserveMargin_TechnologiesIncluded_In_Activity_Units,
+	RM3_RM3_ReserveMargin_Constraint
+- taken out: 
+	RM2_ReserveMargin_FuelsIncluded
+**short**
+- added: 
+	param AnnualPeakHour{r in REGION, y in YEAR}
+- modified:
+	RM3_RM3_ReserveMargin_Constraint
+**fast**
+- added: 
+	param AnnualPeakHour{r in REGION, y in YEAR}
+- modified:
+	RM3_RM3_ReserveMargin_Constraint
+
 ## Version 1.0.0
 
 This is the first stable version of OSeMOSYS to be reduced using the Semantic Versioning pattern
diff --git a/src/osemosys.txt b/src/osemosys.txt
index 88e0b4e..8f2b8f3 100644
--- a/src/osemosys.txt
+++ b/src/osemosys.txt
@@ -131,7 +131,7 @@ param TotalTechnologyModelPeriodActivityLowerLimit{r in REGION, t in TECHNOLOGY}
 #########			Reserve Margin				#############
 #
 param ReserveMarginTagTechnology{r in REGION, t in TECHNOLOGY, y in YEAR} >= 0 <= 1;
-param ReserveMarginTagFuel{r in REGION, f in FUEL, y in YEAR} binary;
+param YearlyPeakCapacity{r in REGION, y in YEAR};
 param ReserveMargin{r in REGION, y in YEAR};
 #
 #########			RE Generation Target		#############
@@ -276,7 +276,7 @@ var ModelPeriodCostByRegion{r in REGION} >= 0;
 #########			Reserve Margin				#############
 #
 var TotalCapacityInReserveMargin{r in REGION, y in YEAR}>= 0;
-var DemandNeedingReserveMargin{r in REGION,l in TIMESLICE, y in YEAR}>= 0;
+#var DemandNeedingReserveMargin{r in REGION,l in TIMESLICE, y in YEAR}>= 0;
 #
 #########			RE Gen Target				#############
 #
@@ -631,14 +631,10 @@ s.t. RM1_ReserveMargin_TechnologiesIncluded_In_Activity_Units{r in REGION, l in
 	=
 	TotalCapacityInReserveMargin[r,y];
 
-s.t. RM2_ReserveMargin_FuelsIncluded{r in REGION, l in TIMESLICE, y in YEAR: ReserveMargin[r,y] > 0}:
-	sum {f in FUEL}
-	RateOfProduction[r,l,f,y] * ReserveMarginTagFuel[r,f,y]
-	=
-	DemandNeedingReserveMargin[r,l,y];
+#s.t. RM2_ReserveMargin_FuelsIncluded{r in REGION, l in TIMESLICE, y in YEAR: ReserveMargin[r,y] > 0}:	sum {f in FUEL}	RateOfProduction[r,l,f,y] * ReserveMarginTagFuel[r,f,y]	=	DemandNeedingReserveMargin[r,l,y];
 
 s.t. RM3_ReserveMargin_Constraint{r in REGION, l in TIMESLICE, y in YEAR: ReserveMargin[r,y] > 0}:
-	DemandNeedingReserveMargin[r,l,y] * ReserveMargin[r,y]
+	YearlyPeakCapacity[r,y] * ReserveMargin[r,y]
 	<=
 	TotalCapacityInReserveMargin[r,y];
 
diff --git a/src/osemosys_fast.txt b/src/osemosys_fast.txt
index 894906d..1dda61f 100644
--- a/src/osemosys_fast.txt
+++ b/src/osemosys_fast.txt
@@ -132,7 +132,7 @@ param TotalTechnologyModelPeriodActivityLowerLimit{r in REGION, t in TECHNOLOGY}
 #########                        Reserve Margin                                #############
 
 param ReserveMarginTagTechnology{r in REGION, t in TECHNOLOGY, y in YEAR} >= 0 <= 1;
-param ReserveMarginTagFuel{r in REGION, f in FUEL, y in YEAR} binary;
+param YearlyPeakCapacity{r in REGION, y in YEAR};
 param ReserveMargin{r in REGION, y in YEAR};
 #
 #########                        RE Generation Target                #############
@@ -513,7 +513,7 @@ s.t. TAC3_TotalModelHorizenTechnologyActivityLowerLimit{r in REGION, t in TECHNO
 #
 #########                   Reserve Margin Constraint        ############## NTS: Should change demand for production
 #
-s.t. RM3_ReserveMargin_Constraint{r in REGION, l in TIMESLICE, y in YEAR}: sum{f in FUEL, (m,t) in MODExTECHNOLOGYperFUELout[f]} RateOfActivity[r,l,t,m,y]*OutputActivityRatio[r,t,f,m,y] * ReserveMarginTagFuel[r,f,y] * ReserveMargin[r,y]<= sum {t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y] * CapacityToActivityUnit[r,t];
+s.t. RM3_ReserveMargin_Constraint{r in REGION, y in YEAR}: YearlyPeakCapacity[r,y]*ReserveMargin[r,y]<=sum{t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y] ;
 #s.t. RM1_ReserveMargin_TechnologiesIncluded_In_Activity_Units{r in REGION, l in TIMESLICE, y in YEAR}: sum {t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y] * CapacityToActivityUnit[r,t]         =         TotalCapacityInReserveMargin[r,y];
 #s.t. RM2_ReserveMargin_FuelsIncluded{r in REGION, l in TIMESLICE, y in YEAR}:  sum{(m,t) in MODExTECHNOLOGYperFUELout[f], f in FUEL} RateOfActivity[r,l,t,m,y]*OutputActivityRatio[r,t,f,m,y] * ReserveMarginTagFuel[r,f,y] = DemandNeedingReserveMargin[r,l,y];
 #
diff --git a/src/osemosys_short.txt b/src/osemosys_short.txt
index 190a4a4..e528728 100644
--- a/src/osemosys_short.txt
+++ b/src/osemosys_short.txt
@@ -128,7 +128,7 @@ param TotalTechnologyModelPeriodActivityLowerLimit{r in REGION, t in TECHNOLOGY}
 #########                        Reserve Margin                                #############
 #
 param ReserveMarginTagTechnology{r in REGION, t in TECHNOLOGY, y in YEAR} >= 0 <= 1;
-param ReserveMarginTagFuel{r in REGION, f in FUEL, y in YEAR} binary;
+param YearlyPeakCapacity{r in REGION, y in YEAR};
 param ReserveMargin{r in REGION, y in YEAR};
 #
 #########                        RE Generation Target                #############
@@ -473,7 +473,7 @@ s.t. TAC3_TotalModelHorizenTechnologyActivityLowerLimit{r in REGION, t in TECHNO
 #
 #########                   Reserve Margin Constraint        ############## NTS: Should change demand for production
 #
-s.t. RM3_ReserveMargin_Constraint{r in REGION, l in TIMESLICE, y in YEAR}: sum{m in MODE_OF_OPERATION, t in TECHNOLOGY, f in FUEL: OutputActivityRatio[r,t,f,m,y] <>0} RateOfActivity[r,l,t,m,y]*OutputActivityRatio[r,t,f,m,y] * ReserveMarginTagFuel[r,f,y] * ReserveMargin[r,y]<= sum {t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y] * CapacityToActivityUnit[r,t];
+s.t. RM3_ReserveMargin_Constraint{r in REGION, y in YEAR}: YearlyPeakCapacity[r,y]*ReserveMargin[r,y]<=sum{t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y];
 #s.t. RM1_ReserveMargin_TechnologiesIncluded_In_Activity_Units{r in REGION, l in TIMESLICE, y in YEAR}: sum {t in TECHNOLOGY} ((sum{yy in YEAR: y-yy < OperationalLife[r,t] && y-yy>=0} NewCapacity[r,t,yy])+ ResidualCapacity[r,t,y]) * ReserveMarginTagTechnology[r,t,y] * CapacityToActivityUnit[r,t]         =         TotalCapacityInReserveMargin[r,y];
 #s.t. RM2_ReserveMargin_FuelsIncluded{r in REGION, l in TIMESLICE, y in YEAR}:  sum{m in MODE_OF_OPERATION, t in TECHNOLOGY, f in FUEL: OutputActivityRatio[r,t,f,m,y] <>0} RateOfActivity[r,l,t,m,y]*OutputActivityRatio[r,t,f,m,y] * ReserveMarginTagFuel[r,f,y] = DemandNeedingReserveMargin[r,l,y];
 #
diff --git a/tests/utopia.txt b/tests/utopia.txt
index 80dbf2a..47e7baa 100644
--- a/tests/utopia.txt
+++ b/tests/utopia.txt
@@ -128,6 +128,12 @@ SN						0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.05	0.
 WD						0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5		0.5
 WN						0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1		;
 
+#
+# YearlyPeakCapacity{r in REGION, y in YEAR} Units: PJ
+# Indicates the electricity demand in the hour of the highest demand in the year
+param	YearlyPeakCapacity	default	0	:	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	:=
+UTOPIA									0.005677568	0.005961446	0.006245325	0.006529203	0.006813081	0.00709696	0.007380838	0.007664716	0.007948595	0.008232473	0.008516352	0.008942169	0.009367987	0.009793804	0.010219622	0.01064544	0.011071257	0.011497075	0.011922892	0.01234871	0.012774527 	;						
+
 #
 # CapacityToActivityUnit{r in REGION, t in TECHNOLOGY};  Units: PJ/GW-YR
 # Thus here we use a factor of 31.536, which is the level of energy production in PJ produced from 1 GW operating for 1 year (1GW * 8760 * 3600 / 10^6)
@@ -368,13 +374,6 @@ param	EmissionsPenalty			:=
 CO2						0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
 NOX						0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		;
 
-#
-# ReserveMarginTagFuel{r in Region,f in Fuel, y in Year} Units: 1=yes, 0=no
-# Indicates if the output fuel has a reserve margin associated with it
-param	ReserveMarginTagFuel	default	0	:=
-	[UTOPIA,*,*]	:	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	:=
-ELC						1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1		1	;
-
 #
 # ReserveMargin{r in Region, y in Year} Units: Ratio (Installed/Peak)
 # The reserve (installed) capacity required relative to the peak demand for the specified fuel.