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Energy Economics and Financial Analysis Flashcards

7 cards from real CEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Energy Economics and Financial Analysis flashcards as text

  1. A facility's monthly electricity bill shows a demand charge of $15/kW for a peak demand of 500 kW. What is the monthly demand charge?

    Answer: $7,500

    Monthly demand charge = $15/kW × 500 kW = $7,500.

  2. In an Energy Savings Performance Contract (ESPC), the contractor's payment is primarily based on:

    Answer: Verified energy savings achieved after implementation

    In an ESPC, the contractor is paid from the verified energy savings, directly aligning contractor incentives with actual performance outcomes.

  3. The Modified Accelerated Cost Recovery System (MACRS) is used in energy project financial analysis to:

    Answer: Determine tax depreciation deductions over the asset's recovery period

    MACRS is the IRS-approved depreciation system that determines how capital costs of energy equipment are deducted for tax purposes over specified recovery periods.

  4. In energy economics, the marginal cost of energy refers to:

    Answer: The cost of the next unit of energy consumed

    Marginal cost is the cost of consuming one additional unit of energy, which is critical for evaluating the economic benefit of incremental energy reductions.

  5. An energy project requires a $100,000 investment and generates $25,000 in annual savings over a 10-year life. What is the simple Return on Investment (ROI)?

    Answer: 150%

    Simple ROI = (Total savings − Investment) / Investment × 100 = ($250,000 − $100,000) / $100,000 × 100 = 150%.

  6. The 'avoided cost' of energy is most accurately described as:

    Answer: The cost savings that result from not consuming a unit of energy

    Avoided cost represents the economic value of energy that does not need to be purchased due to conservation or efficiency measures.

  7. The concept of 'time value of money' in energy project analysis implies that:

    Answer: A dollar of savings today is worth more than a dollar of savings in the future

    The time value of money principle states that money available now is worth more than the same amount in the future due to its earning potential.