CEP Financial Analysis & Energy Budgeting Flashcards

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

Answer: Return on investment (ROI)

Return on investment (ROI) is calculated as annual savings divided by total investment cost, expressed as a percentage.

In energy budgeting, what does a 'load factor' represent?

Answer: The ratio of average demand to peak demand over a period

Load factor is the ratio of average load to peak load over a billing period, indicating how efficiently capacity is being used.

Which cost component in an electricity bill is typically based on the highest 15- or 30-minute interval of demand recorded during the billing period?

Answer: Demand charge

Demand charges are assessed on the peak demand recorded during the billing period, incentivizing customers to reduce peak consumption.

A company pays $0.08/kWh for energy and $12/kW for demand. If monthly usage is 500,000 kWh and peak demand is 1,200 kW, what is the total monthly bill?

Answer: $54,400

Total = (500,000 × $0.08) + (1,200 × $12) = $40,000 + $14,400 = $54,400.

What is 'avoided cost' in the context of energy procurement financial analysis?

Answer: The cost of energy that was not purchased due to efficiency improvements

Avoided cost refers to savings realized by not having to purchase energy or capacity that demand reduction or generation measures eliminate.

Which financial instrument allows an energy buyer to lock in a fixed price for future electricity delivery while the seller assumes price risk?

Answer: Fixed-price forward contract

A fixed-price forward contract obligates both buyer and seller to transact at a predetermined price on a future date, shielding the buyer from price volatility.