CEA CEA Financial Analysis & Energy Project Economics

Question 1

Which financial metric represents the ratio of annual energy cost savings to the total initial investment for an energy project?

Accepted Answer

Return on investment (ROI)

Answer

Simple payback period

Answer

Net present value (NPV)

Answer

Internal rate of return (IRR)

Question 2

A lighting retrofit costs $50,000 and saves $12,500 per year in electricity. What is the simple payback period?

Accepted Answer

4 years

Answer

2 years

Answer

6 years

Answer

8 years

Question 3

Which discount rate concept is used in life-cycle cost analysis to account for the time value of money?

Accepted Answer

Discount rate

Answer

Inflation rate

Answer

Federal funds rate

Answer

Prime rate

Question 4

What does a positive Net Present Value (NPV) indicate about an energy project?

Accepted Answer

The project generates more value than its cost over the analysis period

Answer

The project will never pay back

Answer

The project has a short payback period only

Answer

The project has zero risk

Question 5

Which federal incentive allows businesses to deduct a percentage of the cost of qualifying energy-efficient commercial building improvements?

Accepted Answer

Section 179D deduction

Answer

Investment Tax Credit (ITC)

Answer

Production Tax Credit (PTC)

Answer

MACRS depreciation

Question 6

In energy project financing, what is a Power Purchase Agreement (PPA)?

Accepted Answer

A contract where a third party installs and owns equipment and sells energy output to the host

Answer

A utility rate schedule for large commercial customers

Answer

A government grant for renewable energy installations

Answer

A loan agreement for energy efficiency upgrades