Certified Energy Auditor Certification Economic Analysis and Financing 4

Question 1

A project has an initial cost of $200,000 and generates after-tax cash flows of $40,000 per year for 7 years with no salvage value. What is the approximate internal rate of return (IRR)?

Accepted Answer

16%

Answer

The IRR is approximately 16%, the discount rate at which the NPV of $40,000/yr for 7 years equals the $200,000 investment.

Question 2

Which factor does NOT directly affect the simple payback period calculation for an energy efficiency measure?

Accepted Answer

Discount rate

Answer

Simple payback = cost ÷ annual net savings; the discount rate is not used in this calculation, only in time-value-adjusted methods.

Question 3

A utility offers a $25,000 rebate for installing a high-efficiency chiller that costs $150,000. How does this rebate affect the simple payback period calculation?

Accepted Answer

It reduces the net project cost to $125,000, shortening payback

Answer

Utility rebates reduce the net first cost of the project, directly shortening the payback period when used to offset the investment.

Question 4

What is 'fuel price escalation' and why is it important in energy economic analysis?

Accepted Answer

The projected annual increase in energy prices that affects future savings values

Answer

Fuel price escalation accounts for anticipated increases in energy costs over time, which increases the real value of future energy savings in an LCC analysis.

Question 5

Under a Power Purchase Agreement (PPA) for solar energy, what does the building owner actually purchase?

Accepted Answer

The electricity generated by the solar system at a contracted rate

Answer

In a PPA, the building owner buys the electricity output at a fixed or escalating rate per kWh, while the PPA provider owns and maintains the equipment.

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Economic Analysis and Financing 4