CEP CEP Financial Analysis & Energy Budgeting 2 — Questions and Answers
Question 1: Net Present Value (NPV) in energy project evaluation accounts for which key factor that simple payback does not?
- Total project cost
- Time value of money (Correct answer)
- Annual energy savings
- Equipment lifetime
Correct answer: Time value of money
NPV discounts future cash flows back to present value, recognizing that a dollar saved today is worth more than a dollar saved in the future.
Question 2: An energy manager is evaluating two projects with identical NPVs. Project A has a 2-year payback; Project B has a 5-year payback. Which selection criterion would favor Project A?
- Higher IRR
- Lower discount rate
- Shorter capital recovery period (Correct answer)
- Greater net savings over 10 years
Correct answer: Shorter capital recovery period
A shorter capital recovery period reduces financial risk and frees capital sooner, making Project A preferable when payback period is the selection criterion.
Question 3: What does a 'fuel adjustment clause' (FAC) on an electricity bill represent?
- A fixed monthly surcharge for grid maintenance
- A variable charge that passes fuel cost changes from the utility to the customer (Correct answer)
- A penalty for consuming energy during peak hours
- A rebate for participating in demand response programs
Correct answer: A variable charge that passes fuel cost changes from the utility to the customer
A fuel adjustment clause allows utilities to pass through fluctuations in their fuel procurement costs directly to customers, adjusting bills up or down accordingly.
Question 4: In energy budget forecasting, which method uses historical energy use per unit of output (e.g., kWh/sq ft) to project future consumption?
- Bottom-up engineering analysis
- Top-down intensity benchmarking (Correct answer)
- Regression-based demand modeling
- Scenario planning
Correct answer: Top-down intensity benchmarking
Top-down intensity benchmarking applies historical energy intensity ratios to forecasted production or floor area to estimate future energy use.
Question 5: Which of the following best describes a 'variance analysis' in energy budget management?
- Comparison of actual energy spend to budgeted energy spend to identify deviations (Correct answer)
- Statistical analysis of historical price volatility
- Assessment of contract terms against market benchmarks
- Evaluation of equipment efficiency against nameplate ratings
Correct answer: Comparison of actual energy spend to budgeted energy spend to identify deviations
Variance analysis compares actual expenditures to budgeted amounts, helping managers identify and explain deviations so corrective action can be taken.
Question 6: A building uses 1,200,000 kWh annually and has 120,000 sq ft of floor space. What is its energy use intensity (EUI) in kBtu/sq ft/year? (1 kWh = 3.412 kBtu)
- 10 kBtu/sq ft/yr
- 34.1 kBtu/sq ft/yr (Correct answer)
- 41.0 kBtu/sq ft/yr
- 100 kBtu/sq ft/yr
Correct answer: 34.1 kBtu/sq ft/yr
EUI = (1,200,000 kWh × 3.412 kBtu/kWh) / 120,000 sq ft = 4,094,400 / 120,000 ≈ 34.1 kBtu/sq ft/yr.
CEP CEP Financial Analysis & Energy Budgeting 2
Net Present Value (NPV) in energy project evaluation accounts for which key factor that simple payback does not?