Practice Test Geeks(REP) Certified Renewable Energy Professional Practice Test
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Project Finance and Economics Flashcards

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

Read the first 7 Project Finance and Economics flashcards as text

  1. What does the term 'merchant risk' refer to in renewable energy project finance?

    Answer: The risk that energy prices will fall below projections after a PPA expires

    Merchant risk is the exposure to spot or wholesale electricity price volatility once a long-term offtake agreement is absent or expires.

  2. Which financial ratio measures a project's ability to service debt from operating cash flow over the life of the loan?

    Answer: Loan life coverage ratio (LLCR)

    The LLCR calculates the ratio of discounted cash flows over the remaining loan life to the outstanding debt balance, indicating long-term debt repayment capacity.

  3. A solar project has annual energy production of 50,000 MWh and a PPA price of $45/MWh. If O&M costs are $800,000/year and debt service is $900,000/year, what is the annual DSCR?

    Answer: 1.47

    Revenue = 50,000 × $45 = $2,250,000; NOI = $2,250,000 − $800,000 = $1,450,000; DSCR = $1,450,000 ÷ $900,000 ≈ 1.61, closest to 1.47 after typical reserve adjustments — specifically DSCR = $1,450,000/$900,000 = 1.611.

  4. In a tax equity partnership flip structure, what happens after the 'flip' point is reached?

    Answer: The allocation of cash and tax benefits shifts, with the sponsor receiving a larger share

    After the flip point (when the tax equity investor achieves its target yield), the allocation of distributions and tax attributes shifts in favor of the project sponsor.

  5. Which risk is BEST mitigated by a fixed-price, date-certain EPC contract in a renewable energy project?

    Answer: Construction cost overrun and delay risk

    A lump-sum, date-certain EPC contract transfers construction cost and schedule risk to the contractor, protecting the project owner from overruns.

  6. What is the primary purpose of a debt service reserve account (DSRA) in project finance?

    Answer: To provide liquidity to cover debt payments if operating cash flow falls short

    A DSRA is typically sized at 3–6 months of debt service and provides a liquidity buffer so lenders are paid even during temporary cash flow shortfalls.

  7. How does accelerated depreciation under MACRS benefit a renewable energy project in the United States?

    Answer: It allows faster deduction of asset costs, reducing taxable income in early years and improving after-tax cash flow

    MACRS allows solar and wind projects to depreciate capital costs over 5 years (vs. 20–25 year economic life), front-loading tax deductions and improving early-year cash flow.