Abstract Increasing demand response (DR) from households, industry and tertiary sector may provide substantial flexibility in renewable-based energy systems, but the deployment of DR is currently limited. This study examines the future economic potential DR in the renewable rich northern European region, and also analyses power markets impacts of large-scale DR deployment in the region. For the quantifications, the energy system model BALMOREL is used, modified to include a detailed temporal modelling of available DR potentials. Results show that among the DR options analysed, space heating and water heating provide the highest shares of loads shifted. The overall demand response potential is particularly high in Norway and Sweden, due to wide-spread electric space- and water heating. Low variable costs make these DR applications economically feasible for deployment, despite high supply-side flexibility provided by regulated hydro power. DR may contribute to peak shaving of up to 18.6% of total peak load in 2050. Revenues from DR-application yield very different results depending on techno-economic parameters, potentials and the price volatility in the various analysed market areas. Results show an insignificant change in CO2 emissions between scenarios with and without demand response.