Certified Energy Auditor Certification Economic Analysis and Financing 2 — Questions and Answers
Question 1: A facility manager is comparing two energy upgrades. Project A has an NPV of $45,000 and Project B has an NPV of $38,000 with a lower initial cost. Which project should be selected if the goal is to maximize value?
- Project B, because it requires less capital
- Project A, because it has the higher NPV (Correct answer)
- Project A, only if its IRR exceeds the discount rate
- Project B, because it has a better cost-benefit ratio
Correct answer: Project A, because it has the higher NPV
NPV directly measures the dollar value added to the organization, so the project with the highest NPV maximizes value.
Question 2: What does a benefit-cost ratio (BCR) of 1.5 indicate about an energy project?
- The project loses $0.50 for every dollar invested
- The project breaks even after 1.5 years
- The project generates $1.50 in benefits for every $1.00 spent (Correct answer)
- The project's discount rate is 1.5%
Correct answer: The project generates $1.50 in benefits for every $1.00 spent
A BCR of 1.5 means that for each dollar of cost, the project delivers $1.50 in benefits, indicating a positive return.
Question 3: An energy auditor calculates a Savings-to-Investment Ratio (SIR) of 0.85 for a proposed HVAC upgrade. What does this indicate?
- The project generates 85 cents for every dollar invested and should be accepted
- The project does not recover its full investment and may not be economically justified (Correct answer)
- The project has a simple payback of 0.85 years
- The project's internal rate of return is 85%
Correct answer: The project does not recover its full investment and may not be economically justified
An SIR below 1.0 means the present value of savings is less than the investment cost, indicating the project is not cost-effective on a standalone basis.
Question 4: Which financing mechanism allows a building owner to repay energy efficiency project costs through property tax assessments over time?
- Power Purchase Agreement (PPA)
- Property Assessed Clean Energy (PACE) (Correct answer)
- On-bill financing
- Energy Savings Performance Contract (ESPC)
Correct answer: Property Assessed Clean Energy (PACE)
PACE financing is repaid through property tax bills, allowing owners to spread costs over long terms without upfront capital.
Question 5: What is the primary advantage of using levelized cost of energy (LCOE) when comparing different energy systems?
- It ignores initial capital costs to simplify comparison
- It normalizes lifetime costs to a per-unit-of-energy basis for fair comparison (Correct answer)
- It measures the payback period in years
- It calculates the maximum allowable energy price
Correct answer: It normalizes lifetime costs to a per-unit-of-energy basis for fair comparison
LCOE converts all lifetime costs — capital, O&M, fuel — into a single $/kWh figure, enabling apples-to-apples comparison across technologies.
Question 6: In an Energy Savings Performance Contract (ESPC), who bears the financial risk if the projected energy savings are not achieved?
- The building owner
- The local utility company
- The Energy Service Company (ESCO) (Correct answer)
- The federal government
Correct answer: The Energy Service Company (ESCO)
In an ESPC, the ESCO guarantees the savings and bears the financial risk if savings fall short of projections.
Question 7: A $100,000 energy project saves $18,000 per year. Using simple payback, how long will it take to recover the investment?
- 4.5 years
- 5.6 years (Correct answer)
- 18 years
- 10 years
Correct answer: 5.6 years
Simple payback = $100,000 ÷ $18,000/year ≈ 5.6 years.
