Demand response in liberalized electricity markets: Analysis of aggregated load participation in the German balancing mechanism

Power systems are in the midst of radical changes as a result of steadily rising demand, advanced technology integration and increasing penetration levels of renewable energy sources. Such developments have brought about increasing recognition of consumer behavior and the provision of DR (demand response). The aggregation of small loads as a DR flexibility resource allows end-users to participate in electricity markets and aid in maintaining dynamic system stability. An analysis of the German balancing mechanism illustrates that DR is undermined by three mechanism design aspects: minimum bidding volume, minimum bid duration and binding up and down bids. •More renewables call for a parallel rise in balance management by System Operators.•Aggregated DR (demand response) from end-users is viable for balance management.•Mechanism design hinders the participation of smaller loads in balance management.•Specifics for balance responsibility, service provision and settlement undermine DR.•Hindering bid aspects include up and down bids, minimum bid volume and duration.