CMVP Financial Analysis & Energy Performance Contracting

Question 1

What is the primary purpose of an Energy Performance Contract (EPC)?

Accepted Answer

To allow an ESCO to finance and implement energy improvements repaid through verified energy savings

Answer

To guarantee building comfort levels regardless of energy use

Answer

To transfer ownership of energy equipment to a utility company

Answer

To establish fixed energy tariffs between a client and a supplier

Question 2

In a Guaranteed Savings EPC structure, who bears the primary performance risk if savings fall short of projections?

Accepted Answer

The Energy Service Company (ESCO)

Answer

The building owner/client

Answer

The utility company

Answer

The third-party M&V provider

Question 3

Simple payback period for an energy efficiency project is calculated as:

Accepted Answer

Total project cost divided by annual energy cost savings

Answer

Annual energy savings divided by total project cost

Answer

Net present value divided by the discount rate

Answer

Total project cost multiplied by the annual interest rate

Question 4

Net Present Value (NPV) is used in energy project financial analysis to:

Accepted Answer

Assess the current value of future cash flows discounted to today

Answer

Determine the maximum allowable project budget

Answer

Calculate the unadjusted sum of all future savings

Answer

Establish the energy baseline for M&V purposes

Question 5

What does the Internal Rate of Return (IRR) represent in energy project analysis?

Accepted Answer

The discount rate at which the NPV of a project equals zero

Answer

The guaranteed minimum return mandated by the ESCO

Answer

The ratio of annual savings to total capital expenditure

Answer

The interest rate charged by the financing institution

Question 6

In the context of EPCs and M&V, what is the role of the measurement and verification process from a financial standpoint?

Accepted Answer

To provide an auditable record of savings used as the basis for ESCO payment

Answer

To negotiate lower utility rates on behalf of the client

Answer

To certify the energy equipment for tax credit eligibility

Answer

To establish insurance coverage limits for project equipment

Question 7

Which of the following best describes a Shared Savings EPC structure?

Accepted Answer

The ESCO finances the project and receives a percentage of verified savings as payment

Answer

The client and ESCO split the capital cost of the project equally

Answer

The utility company shares in the savings and reduces the client's bill directly

Answer

The client guarantees savings to the ESCO in exchange for lower financing rates