Local energy markets (LEMs) aim at building up local balances of generation and
demand close to real time. A bottom-up energy system made up of several LEMs could
reduce energy transmission, renewable curtailment and redispatch measures in the
long-term, if managed properly. However, relying on limited local resources, LEMs
require flexibility to achieve a high level of self-sufficiency. We introduce demand
response (DR) into LEMs as a means of flexibility in residential demand that can be used
to increase local self-sufficiency, decrease residual demand power peaks, facilitate local
energy balances and reduce the cost of energy supply. We present a simulation study
on a 100 household LEM and show how local sufficiency can be increased up to 16%
with local trading and DR. We study three German regulatory scenarios and derive that
the electricity price and the annual residual peak demand can be reduced by up to
10ce/kWh and 40
