SE Engr. Solar Policy, Economics, and Sustainability 2 — Questions and Answers
Question 1: A commercial PV system costs $1,000,000 and claims a 30% investment tax credit. Under federal rules, what is the depreciable basis for MACRS?
- $1,000,000
- $700,000
- $970,000
- $850,000 (Correct answer)
Correct answer: $850,000
The depreciable basis is reduced by half the ITC amount, so $1,000,000 minus $150,000 equals $850,000.
Question 2: Under MACRS, commercial solar energy property is generally depreciated over what recovery period?
- 20 years
- 15 years
- 5 years (Correct answer)
- 7 years
Correct answer: 5 years
Solar energy property is classified as 5-year MACRS property.
Question 3: Which metric is the ratio of the present value of lifetime costs to the present value of lifetime energy produced?
- Internal rate of return (IRR)
- Benefit-cost ratio
- Simple payback period
- Levelized cost of energy (LCOE) (Correct answer)
Correct answer: Levelized cost of energy (LCOE)
LCOE divides discounted lifetime costs by discounted lifetime energy output, usually in $/kWh.
Question 4: If a project's NPV is exactly zero at a 7% discount rate, what does that tell you about its IRR?
- The IRR is greater than 7%
- The IRR is less than 7%
- The IRR equals 7% (Correct answer)
- The IRR cannot be determined
Correct answer: The IRR equals 7%
IRR is defined as the discount rate at which NPV equals zero.
Question 5: Which federal law first required utilities to buy power from qualifying small power producers at the utility's avoided cost?
- Energy Policy Act of 2005
- Clean Air Act Amendments of 1990
- Inflation Reduction Act (2022)
- PURPA (1978) (Correct answer)
Correct answer: PURPA (1978)
The Public Utility Regulatory Policies Act of 1978 created qualifying facilities and avoided-cost purchase obligations.
Question 6: A solar developer sells all of a project's output to a corporate buyer at a fixed $/kWh price for 20 years. What is this agreement called?
- Net metering tariff
- Renewable portfolio standard
- Feed-in tariff
- Power purchase agreement (PPA) (Correct answer)
Correct answer: Power purchase agreement (PPA)
A PPA is a long-term contract to buy electricity from a generator at a set price.
Question 7: What is energy payback time (EPBT) for a PV module?
- The warranty period for rated power output
- The time needed to recover the system's purchase price
- The time the module takes to generate the energy used to make it (Correct answer)
- The time until output drops to 80% of nameplate
Correct answer: The time the module takes to generate the energy used to make it
EPBT compares embodied manufacturing energy with annual energy generation, and for modern PV it is typically 1-3 years.
SE Engr. Solar Policy, Economics, and Sustainability 2
A commercial PV system costs $1,000,000 and claims a 30% investment tax credit.
Under federal rules, what is the depreciable basis for MACRS?