REP Project Finance and Economics 3

Question 1

What is 'levelized cost of energy' (LCOE) primarily used for in renewable energy project evaluation?

Accepted Answer

Comparing the lifetime cost per unit of energy across different generation technologies

Answer

LCOE normalizes all project costs (capital, operating, financing) over lifetime energy output into a single $/MWh metric, enabling apples-to-apples technology comparisons.

Question 2

A wind project developer secures a 20-year PPA at $38/MWh. The current spot price is $42/MWh. From the offtaker's perspective, what is the main benefit of this arrangement?

Accepted Answer

Price certainty and protection against future electricity price increases

Answer

A fixed-price PPA locks in electricity costs for the offtaker, providing budget certainty and a hedge against spot price volatility regardless of whether current prices are higher or lower.

Question 3

Which metric represents the rate at which the present value of future cash inflows equals the present value of cash outflows, making NPV equal to zero?

Accepted Answer

Internal rate of return (IRR)

Answer

IRR is the discount rate that sets NPV to zero; if IRR exceeds the project's hurdle rate, the investment creates value.

Question 4

In project finance, what is the difference between 'recourse' and 'non-recourse' debt?

Accepted Answer

With recourse debt, lenders can claim the sponsor's other assets if the project defaults; non-recourse limits claims to project assets only

Answer

Non-recourse project finance ring-fences the project's assets and cash flows as the sole collateral, protecting the sponsor's balance sheet from project-level defaults.

Question 5

What is the 'equity multiple' in the context of renewable energy project investments?

Accepted Answer

The total cash returned to equity investors divided by the initial equity invested

Answer

Equity multiple = total distributions to equity ÷ equity invested; a 2.0× multiple means investors receive $2 for every $1 invested over the project's life.

(REP) Certified Renewable Energy Professional Practice Test

(REP) Certified Renewable Energy Professional Practice Test

REP Project Finance and Economics 3