CEA Energy Policy & Market Analysis 5 — Questions and Answers
Question 1: The North American Energy Standards Board (NAESB) is primarily responsible for:
- Setting retail electricity rates in deregulated states
- Developing wholesale and retail energy transaction standards and business practices (Correct answer)
- Overseeing nuclear plant licensing and safety regulations
- Administering federal energy efficiency grant programs
Correct answer: Developing wholesale and retail energy transaction standards and business practices
NAESB develops standardized business practices and data exchange formats for wholesale and retail natural gas and electricity markets across North America.
Question 2: Which policy mechanism provides a guaranteed above-market price for renewable energy generation over a long contract period, reducing investor risk?
- Carbon offset market
- Feed-in tariff (FIT) (Correct answer)
- Net metering
- Tradeable renewable portfolio standard
Correct answer: Feed-in tariff (FIT)
A feed-in tariff guarantees renewable generators a fixed, above-market rate per kWh for a defined period, providing revenue certainty that lowers the cost of capital for projects.
Question 3: In wholesale power markets, 'congestion revenue rights' (CRRs) or 'financial transmission rights' (FTRs) are used to:
- Prioritize certain generators for dispatch during grid emergencies
- Hedge against transmission congestion cost in locational marginal pricing systems (Correct answer)
- Reserve physical transmission capacity for specific generators
- Allocate interconnection queue positions to new generation projects
Correct answer: Hedge against transmission congestion cost in locational marginal pricing systems
FTRs/CRRs are financial instruments that entitle holders to receive (or pay) the difference in LMPs between two nodes, hedging against congestion charges in LMP markets.
Question 4: The Energy Independence and Security Act (EISA) of 2007 is most closely associated with:
- Establishing cap-and-trade for power plant CO₂ emissions
- Setting the Renewable Fuel Standard and appliance efficiency mandates (Correct answer)
- Creating the Strategic Petroleum Reserve
- Deregulating interstate natural gas pipelines
Correct answer: Setting the Renewable Fuel Standard and appliance efficiency mandates
EISA 2007 expanded the Renewable Fuel Standard, set new CAFE vehicle efficiency standards, and updated appliance and building efficiency requirements.
Question 5: In energy market analysis, what does the 'merit order' concept determine?
- The regulatory priority given to renewables over fossil fuel plants
- The sequence in which power plants are dispatched based on their marginal costs (Correct answer)
- The order in which interconnection applications are processed by grid operators
- A ranking of fuel sources by their carbon intensity per unit of energy
Correct answer: The sequence in which power plants are dispatched based on their marginal costs
The merit order stacks generators from lowest to highest marginal cost; the cheapest units are dispatched first and the most expensive unit needed to meet demand sets the market clearing price.
Question 6: Which market outcome occurs when electricity prices fall below zero in wholesale spot markets?
- Grid operators declare a reliability emergency and halt trading
- Generators with high shutdown costs or production tax credits pay to keep running (Correct answer)
- All must-run generators are automatically curtailed by market rules
- FERC intervenes to set a price floor at zero to prevent market distortion
Correct answer: Generators with high shutdown costs or production tax credits pay to keep running
Negative prices occur when inflexible generators (nuclear, wind receiving PTCs) find it more economical to pay the market to take their output than to incur high startup/shutdown costs or forfeit tax credits.
Question 7: A utility planning to comply with a carbon cap using a mix of efficiency programs and renewable procurement would most appropriately evaluate these options using:
- Short-run marginal cost analysis
- A cost-effectiveness test such as the Total Resource Cost (TRC) test (Correct answer)
- Simple payback period calculations only
- Discounted payback with a risk-free discount rate mandated by FERC
Correct answer: A cost-effectiveness test such as the Total Resource Cost (TRC) test
The TRC test measures whether the total benefits of an energy resource or efficiency program exceed total costs from a societal perspective, making it appropriate for comparing diverse compliance options.
CEA Energy Policy & Market Analysis 5
The North American Energy Standards Board (NAESB) is primarily responsible for: