The massive penetration of Distributed Energy Resources (DERs) will unavoidably change the fundamental principles of Power System operation. Modern grid codes define specific capabilities and protections of DERs, mostly focused on the behaviour of the units to abrupt voltage and frequency excursions. In this paper, we use the Cyprus power system to analyze the impact of DER protections and capabilities on the bulk power system dynamic behaviour for different RES penetration levels on a low-inertia islanded system. It is demonstrated that the DER capabilities positively affect the power system frequency stability by providing active power support. On the contrary, protection mechanisms of DERs can have a negative impact on frequency stability during severe events with high RES penetrations, but the impact is significantly affected by their settings.