Certified Energy Auditor Certification Economic Analysis of Projects 4 — Questions and Answers
Question 1: Under MACRS, commercial energy efficiency equipment is typically assigned which depreciation life?
- 3 years
- 5 years
- 7 years (Correct answer)
- 15 years
Correct answer: 7 years
Most commercial energy-efficiency equipment (HVAC, lighting, controls) qualifies as 7-year MACRS property under IRS asset class rules.
Question 2: The federal Investment Tax Credit (ITC) for a solar PV system reduces project economics by:
- Increasing the required simple payback threshold
- Directly reducing the net capital cost in the first year (Correct answer)
- Increasing the IRR requirement
- Extending the MACRS depreciation period
Correct answer: Directly reducing the net capital cost in the first year
The ITC is a dollar-for-dollar reduction in federal tax liability equal to a percentage of installed cost, effectively reducing the net first-year capital outlay.
Question 3: A utility offers a $50,000 rebate for an energy efficiency upgrade costing $200,000. How does the rebate affect the economic analysis?
- It is taxable income and does not affect project cost
- It reduces the net installed cost to $150,000 for payback calculations (Correct answer)
- It increases the project IRR by increasing savings
- It is ignored in federally mandated LCC analyses
Correct answer: It reduces the net installed cost to $150,000 for payback calculations
Utility rebates directly reduce the net first cost of the project, improving all economic metrics including payback, NPV, and IRR.
Question 4: For a tax-paying entity, the after-tax annual savings from an energy project are calculated by:
- Multiplying gross savings by the marginal tax rate
- Subtracting depreciation from gross savings
- Multiplying gross savings by (1 − marginal tax rate) (Correct answer)
- Adding depreciation tax shield to gross savings
Correct answer: Multiplying gross savings by (1 − marginal tax rate)
After-tax savings = Gross savings × (1 − tax rate), since energy cost savings increase taxable income and create a tax liability.
Question 5: The depreciation tax shield in energy project analysis refers to:
- Protection from property tax increases after upgrade
- The tax deduction created by annual depreciation expense (Correct answer)
- Exemption from sales tax on energy-efficient equipment
- A government grant shielding project costs from income tax
Correct answer: The tax deduction created by annual depreciation expense
The depreciation tax shield is the annual tax reduction = depreciation expense × marginal tax rate, which improves after-tax cash flow.
Question 6: Net metering economics for a solar PV installation are most accurately evaluated by:
- Using the retail electricity rate for all exported kWh
- Applying different rates: retail rate for avoided consumption, wholesale/avoided cost rate for exported kWh beyond consumption (Correct answer)
- Using only the utility's avoided cost rate for all generation
- Calculating payback based solely on peak demand savings
Correct answer: Applying different rates: retail rate for avoided consumption, wholesale/avoided cost rate for exported kWh beyond consumption
Net metering economics are more accurate when retail rates apply to self-consumed kWh and the net export rate (which may be lower) applies to excess kWh sent to the grid.
Question 7: A building's blended electricity rate is $0.12/kWh. The peak demand charge is $15/kW-month. An energy project reduces consumption by 50,000 kWh/yr and peak demand by 20 kW. What are total annual savings?
- $6,000 — consumption savings only
- $3,600 — demand savings only
- $9,600 — consumption plus demand savings (Correct answer)
- $12,000 — includes projected escalation
Correct answer: $9,600 — consumption plus demand savings
Annual savings = (50,000 kWh × $0.12) + (20 kW × $15/kW-month × 12 months) = $6,000 + $3,600 = $9,600.
Certified Energy Auditor Certification Economic Analysis of Projects 4
Under MACRS, commercial energy efficiency equipment is typically assigned which depreciation life?