Stable modeling of different European power markets

In this paper we address the issue of modeling spot prices of different European power markets. With the German, Nordic and Polish power markets we consider three markets at a very different stage of liberalization. After summarizing the stylized facts about spot electricity prices, we provide a comparison of the considered markets in terms of price behavior. We find that there are striking differences: while for the Nordic and German power exchange prices show heavy tails, spikes, high volatility and heteroscedasticity, returns of spot prices in the Polish market can be modeled adequately by the Gaussian distribution. We introduce the stable Paretian distribution to capture heavy tails, high kurtosis and asymmetries in electricity spot prices. We further provide ARMA/GARCH time series models with Gaussian and stable innovations for modeling the behavior of the different markets.