CEA Energy Policy & Market Analysis 3 — Questions and Answers
Question 1: The Energy Policy Act of 2005 created a Production Tax Credit (PTC) primarily for which technology at that time?
- Solar photovoltaic systems
- Offshore wind farms
- Wind energy and other qualifying renewables (Correct answer)
- Natural gas combined cycle plants
Correct answer: Wind energy and other qualifying renewables
The PTC provides a per-kilowatt-hour tax credit for electricity generated from qualifying renewable sources, with wind historically being the primary beneficiary.
Question 2: In deregulated electricity markets, the 'energy-only' market design relies on which mechanism to incentivize adequate generation investment?
- Regulated cost-of-service returns guaranteed by the state
- Capacity payments set by an independent capacity auction
- High energy prices during scarcity events (scarcity pricing) (Correct answer)
- Long-term power purchase agreements mandated by regulators
Correct answer: High energy prices during scarcity events (scarcity pricing)
Energy-only markets depend on elevated spot prices during scarcity to provide the revenue signals needed to attract new investment without separate capacity payments.
Question 3: What is the primary purpose of a strategic petroleum reserve (SPR)?
- To stabilize gasoline retail prices year-round
- To provide emergency crude oil supply during supply disruptions (Correct answer)
- To store refined petroleum products for export markets
- To fund domestic oil exploration and production subsidies
Correct answer: To provide emergency crude oil supply during supply disruptions
The U.S. SPR holds crude oil stocks that can be released to counteract sudden supply interruptions and reduce economic impacts of oil price shocks.
Question 4: Under a cap-and-trade program, if the allowance price rises significantly above expectations, which policy safety valve is sometimes included?
- A price floor that prevents allowances from selling below a minimum
- A cost containment reserve that releases additional allowances at a trigger price (Correct answer)
- An automatic import of international offsets at world market prices
- A regulatory waiver that exempts high-emitting facilities temporarily
Correct answer: A cost containment reserve that releases additional allowances at a trigger price
A cost containment reserve releases a fixed pool of extra allowances at a predetermined price ceiling, preventing compliance costs from exceeding policy intent.
Question 5: Which concept describes the minimum price at which a generator will offer power into the wholesale market, typically reflecting variable operating costs?
- Strike price
- Marginal cost (short-run) (Correct answer)
- Levelized cost of energy (LCOE)
- All-in cost of service
Correct answer: Marginal cost (short-run)
A generator's short-run marginal cost (primarily fuel and variable O&M) sets its offer floor, since it will not bid below the cost of actually producing each additional megawatt-hour.
Question 6: The Inflation Reduction Act (IRA) of 2022 significantly altered U.S. clean energy policy primarily by:
- Establishing a national carbon price for the first time
- Providing large-scale tax credits and direct pay for clean energy investments (Correct answer)
- Mandating a 100% clean electricity standard by 2035
- Eliminating all fossil fuel subsidies under the tax code
Correct answer: Providing large-scale tax credits and direct pay for clean energy investments
The IRA deployed roughly $370 billion in tax credits, grants, and loans for clean energy, EVs, and industrial decarbonization, making it the largest U.S. climate investment to date.
Question 7: In natural gas markets, the Henry Hub price is best described as:
- The average wellhead price across all U.S. producing basins
- A regional pipeline tariff set by FERC for interstate transport
- The benchmark spot price for natural gas in North America (Correct answer)
- The minimum price guaranteed to gas producers under federal law
Correct answer: The benchmark spot price for natural gas in North America
Henry Hub in Louisiana serves as the primary pricing point and benchmark for NYMEX natural gas futures contracts and spot trading in North America.
CEA Energy Policy & Market Analysis 3
The Energy Policy Act of 2005 created a Production Tax Credit (PTC) primarily for which technology at that time?