The last decade has witnessed two major undertakings on the road towards low carbon future that profoundly influence the electricity system in Europe and are at the same time technology and market drivers:
- Vertical decomposition & structuring of European electricity market – introduction of energy trading - the stimulus for new technologies and innovation
- SET plan – RES share targets and objectives in the electricity mix – the stimulus for growth of the market size and investments.

The increasing share of renewable energy sources and dispersed energy production are placing new challenges for maintaining the stability of the electrical grid. In pursuing this goal, demand side management (DSM), combined with energy storage, is progressively gaining in importance as one of the measures that acts both locally and on the system level. In order to benefit optimally from DSM, both market and technology drivers have to take full effect; - structuring of the vertically integrated electrical power system has to be carried out in practice, and the concept of electricity trading has to be introduced on the prosumer level to generate strong incentive for demand response.

The concept of harmonized electricity market model in Europe [1] is briefly presented, which decomposes the electrical system into several levels of vertically nested subsystems with essentially the same primary processes. This enables scalability of technologies and makes possible introduction of the concept of energy trading to the prosumer level.

In such a system, the DSM can be used both to reduce the energy disbalance in the Balance Group by the Balance responsible party (BRP) and as part of the system reserves of the System operator (SO) to maintain the stability of the grid, with the reserves being “negative”, i.e. on the demand side. The virtual system, consisting of producers, consumers and prosumers (= parties connected to the grid), is customarily termed Virtual power plant based on DSM. These two objectives largely define the target business cases: supply tertiary reserves to SO; optimize operation of the Balance group or its part for its BRP or scaled down equivalent. One subset of the latter is a microgrid based on DSM.

The prerequisite of the concept of trading is introduction of WIN-WIN business model into relationships of involved players, in particular between the BRP and the party connected to the grid. Such a model has already been developed in implemented in 2010 by a Slovenian SME, and successfully demonstrated in 2011 in a pilot demonstration project [2].

The evolution of this model and solution involves a radical novel approach for active demand (and supply) side management in which electricity consumers and producers issue explicit socalled flex-offers indicating their available flexibilities in time and electricity amount [3].

The concept puts the prosumer into an active position and enables its pro-active behaviour – stimulating internal measures to augment the demand response.