Erp Practice Quiz 2

Energy Risk Professional
(ERP) Examination
Practice Quiz 2: Electricity and Renewable Energy
Energy Risk Professional Examination (ERP) Practice Quiz 2
TABLE OF CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ERP Practice Quiz 2 Candidate Answer Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ERP Practice Quiz 2 Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ERP Practice Quiz 2 Answer Sheet/Answers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ERP Practice Quiz 2 Explanations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2012 Global Association of Risk Professionals. All rights reserved. It is illegal to reproduce this material
in any format without prior written approval of GARP, Global Association of Risk Professionals, Inc.
Introduction
Suggested Use of Practice Quizzes
The ERP Practice Quizzes were developed for use in con-
To maximize the eectiveness of the practice quizzes,
junction with the ERP Exam Preparation Handbook. The
candidates are encouraged to do the following:
Practice Quizzes are designed to simulate both the style and

range of questions found on the ERP Examination, helping
ERP Candidates gauge their level of preparedness to take
1. Complete ERP Core Readings prior to taking each

Practice Quiz.
the ERP Examination. Each Practice Quiz includes a series
Questions are derived specically from Core Readings
of ten review questions drawn from specific sections of the
and represent a small sampling of the content covered
ERP Examination: Hydrocarbons, Electricity/Renewables,
in the Core Readings that proceed each scheduled quiz.
Financial Products, and Modeling/Risk Management techniques. The Practice Quizzes provide candidates with a tool
2. Simulate the test environment as closely as possible.
to review and test their comprehension of key concepts as
Take the practice quiz in a quiet place.
they work through the study plans outlined in the Exam
Have only the practice quiz, candidate answer sheet,
Preparation Handbook.
calculator (see the ERP Preparation Handbook for a
It is strongly suggested that Practice Quizzes be taken after
instruments (pencils, erasers) available.
listing of GARP-approved calculators), and writing

a candidate completes their review of the core readings pre-
Minimize possible distractions from other people, cell
ceding each quiz (please see the 15- and 20-week reading
phones, televisions, etc.; put away any study material
plans outlined in the ERP Exam Preparation Handbook for
before beginning the practice exam.
more information). Practice Quizzes include explanations of
Allocate two minutes per question for the practice quiz
the correct answer for each question so that candidates can
and set an alarm to alert you when a total of 20
better understand their incorrect replies and identify areas
minutes have passed.
of weakness that need reinforcement.

3. After completing each ERP Practice Quiz
Calculate your score by comparing your answer

sheet with the practice exam answer key.
Use the practice quiz Answers and Explanations to

better understand the correct and incorrect answers
and to identify any topics that require additional
review. Consult the referenced core readings to
continue your preparation for the exam.
Energy Risk
Professional(ERP )
Examination
Practice Quiz 2
Answer Sheet
a.
b.
c.
d.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Correct way to complete
1.
Wrong way to complete
1.
Energy Risk
Professional(ERP )
Examination
Practice Quiz 2
Questions
1.
What demand factors should be included within a spatial load forecast for a power grid?
a.
b.
c.
d.
2.
Which has the greatest influence on day-to-day variations in demand for electricity?
a.
b.
c.
d.
3.
Postage stamp
Nodal
Electrical basis
Zonal
A _________ is widely considered to be the safest.

a.
b.
c.
d.
5.
Economic factors
Fuel costs
Generation constraints
Weather
Which of the following is not a method for setting electrical rates for end-use customers on a power grid?
a.
b.
c.
d.
4.
Expected average load demand on the grid only

Expected maximum load demand on the grid only
Both expected average and expected maximum load demand on the grid
Neither expected average nor expected maximum load demand on the grid
Pressurized Light-Water Nuclear Reactor

Pebble Bed Modular Nuclear Reactor
Pressurized Heavy-Water Nuclear Reactor
Boiling Water Nuclear Reactor
Capacity in the electricity market is best described as what?

a.
b.
c.
d.
The operating boundary of a generation plant.

The amount of energy available relative to a forward schedule or contract.
The total ability of a system to produce or transport energy.
Capacity means different things to different industry stakeholders, the term cannot be easily defined.
6.
Sam is the operator of a large electric generation facility in a deregulated regional market. What is the most
likely reason why Sam would participate in a day-ahead auction, but not in a real-time auction?
a.
b.
c.
d.
7.
Smyth Power Ltd. is a power marketer for electric power distributers in the western region of the United
States. The state of Arizona is offering tax credits as an incentive for the construction of wind generation
facilities. Why would tax incentives not be an economic benefit to Smyth Power Ltd.?
a.
b.
c.
d.
8.
Sam operates a coal-fired generation plant.

Real-time auctions are highly volatile.
Real-time auctions are open only to power marketers, not power plants.
Sams bid was not selected for the day-ahead auction therefore he was not eligible to participate in the
real-time auction.
Tax
Tax
Tax
Tax
credits
credits
credits
credits
are
are
are
are
unlikely to match the construction costs of the wind farm.

available only to the owner of the wind farm.
available only for electricity sales into deregulated markets.
available only if the wind farm generates at least 51% of its nameplate capacity.
Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) are types of
Transmission System Operators (TSOs) that distribute electricity within regional electric markets. Which of
the following statement(s) is/are correct?
I.
II.
ISOs function within a single state, but their operations fall under federal jurisdiction.
RTOs may operate across state lines, but their operations are exempt from federal jurisdiction.
a.
b.
c.
d.
Statement I only
Statement II only
Both statements
Neither statement
9.
The two countries with the most advanced ethanol production and distribution systems are the United States
and Brazil. Which statement about the ethanol markets in the United States and Brazil is correct?
a.
b.
c.
d.
10.
The United States enjoys a competitive advantage over Brazil in ethanol production.
Most Brazilian ethanol is used for industrial purposes and not sold to the public.
Imports of Brazilian ethanol to the United States are constrained by tariffs.
High domestic demand in both countries makes ethanol export unrealistic.
Armin is the CEO of a manufacturing plant. He is told his plant needs to reduce its greenhouse gas (GHG)
emissions by 25 tons per year. The plant has equipment installed that can remove up to 35 tons of GHG
emissions at a cost of EUR 75/ton. Gary runs a neighboring plant that must reduce its emissions by 30 tons,
at a cost of EUR 120/ton. Given this information, what is the most cost-effective strategy for Armin to reduce
his plants emissions?
a.
b.
c.
d.
Cut back on production

Switch to a lower-pollution fuel
Buy emission credits from Garys plant
Sell emission credits to Garys plant
Energy Risk
Professional(ERP )
Examination
Practice Quiz 2
Answers
a.
b.
c.
d.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Correct way to complete
1.
Wrong way to complete
1.
Energy Risk
Professional(ERP )
Examination
Practice Quiz 2
Explanations
1.
What demand factors should be included within a spatial load forecast for a power grid?
a.
b.
c.
d.
Expected average load demand on the grid only

Expected maximum load demand on the grid only
Both expected average and expected maximum load demand on the grid
Neither expected average nor expected maximum load demand on the grid
Correct answer: c
Explanation: Spatial load forecasts estimate both the expected average load and maximum demands on the
power grid, this is necessary so that enough generated capacity can be prepared to meet any possible
demand during the forecasted period. Base load is typically established from historical demand records and is
a known quantity.
Reading reference: Energy Trading and Investing, Edwards; Chapter 4.1, page 245.
2.
Which has the greatest influence on day-to-day variations in demand for electricity?
a.
b.
c.
d.
Economic factors
Fuel costs
Generation constraints
Weather
Correct answer: d
Explanation: Weather is considered the single largest factor in affecting day-to-day variations in demand for
electricity for example, people using more air conditioners on an unexpectedly hot day, making d the
correct answer. Note that answers b and c would be factors affecting supply not demand.
Reading reference: Energy Trading and Investing, Edwards, Chapter 4.1, page 250.
3.
Which of the following is not a method for setting electrical rates for end-use customers on a power grid?
a.
b.
c.
d.
Postage stamp
Nodal
Electrical basis
Zonal
Correct answer: c
Explanation: Answer c is not a method for setting rates, thus is the correct answer. In this context,
Electrical basis is a made up term.
Reading reference: Electricity Markets: Pricing Structure and Economics, Harris, Chapter 7, pages 249-52.
11
4.
A _________ is widely considered to be the safest.

a.
b.
c.
d.
Pressurized Light-Water Nuclear Reactor

Pebble Bed Modular Nuclear Reactor
Pressurized Heavy-Water Nuclear Reactor
Boiling Water Nuclear Reactor
Correct answer: b
Explanation: Answer b is correct. PBMR's are considered the safest because the reactor design does not
necessitate the use of neutron-absorbing control rods, whose absence during operations in other reactor
designs might cause the reactors to go supercritical. Since the PBMR is gas-cooled, it will also avoid the Loss
of Coolant Accidents (LOCA) like those at Three Mile Island and Chernobyl.
Reading reference: Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative
Sources, Nersesian, Chapter 8.
5.
Capacity in the electricity market is best described as what?

a.
b.
c.
d.
The operating boundary of a generation plant.

The amount of energy available relative to a forward schedule or contract.
The total ability of a system to produce or transport energy.
Capacity means different things to different industry stakeholders, the term cannot be easily defined.
Correct answer: d
Explanation: Answer d is correct; the term capacity will have different meanings to different sectors of the
industry. For example, answers a, b and c each represent capacity to a different actor in the energy
industry: plant operators, market traders and system planners, respectively.
Reading reference: Making Competition Work in Electricity, Hunt, Chapter 8.
12
6.
Sam is the operator of a large electric generation facility in a deregulated regional market. What is the most
likely reason why Sam would participate in a day-ahead auction, but not in a real-time auction?
a.
b.
c.
d.
Sam operates a coal-fired generation plant.

Real-time auctions are highly volatile.
Real-time auctions are open only to power marketers, not power plants.
Sams bid was not selected for the day-ahead auction therefore he was not eligible to participate in the
real-time auction.
Correct answer: a
Explanation: Answer a is correct. Real-time auctions balance power demand during the actual delivery day;
bids are typically for five-minute increments, meaning power plants must be able to turn off and on quickly.
Coal-fueled plants take some time to fire up, meaning that the plant cannot be turned on quickly, so Sam
would be unlikely to participate in the real-time auction. Real-time auctions are open to power plants, while a
losing bid in the day-ahead auction does not prevent a generator from participating in the real-time auction.
Reading reference: Energy Trading & Investing, Edwards, Chapter 2.2, pages 95-96.
7.
Smyth Power Ltd. is a power marketer for electric power distributers in the western region of the United
States. The state of Arizona is offering tax credits as an incentive for the construction of wind generation
facilities. Why would tax incentives not be an economic benefit to Smyth Power Ltd.?
a.
b.
c.
d.
Tax
Tax
Tax
Tax
credits
credits
credits
credits
are
are
are
are
unlikely to match the construction costs of the wind farm.

available only to the owner of the wind farm.
available only for electricity sales into deregulated markets.
available only if the wind farm generates at least 51% of its nameplate capacity.
Correct answer: b
Explanation: The correct answer is b. Tax credits for renewable energy projects are typically only available
for the owner of the renewable power plant. As the power marketer, Smyth Power Ltd. is not the owner of the
wind farm, but rather an outside company hired to sell their power on behalf of the owner, therefore Smyth
Power Ltd. would realize no benefit from the offered tax credits.
Reading reference: Geoffrey Heal. The Economics of Renewable Energy, page 5.
13
8.
Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) are types of
Transmission System Operators (TSOs) that distribute electricity within regional electric markets. Which of
the following statement(s) is/are correct?
I.
II.
ISOs function within a single state, but their operations fall under federal jurisdiction.
RTOs may operate across state lines, but their operations are exempt from federal jurisdiction.
a.
b.
c.
d.
Statement I only
Statement II only
Both statements
Neither statement
Correct answer: d
Explanation: While ISOs operate solely within one state and RTOs operate in several, the second part of both
statements is incorrect: ISOs are exempt from federal jurisdiction, while RTOs are regulated by federal authorities;
thus making both statements false and d the correct answer.
Reading reference: Energy Trading & Investing, Edwards, Chapter 2.2, pages 93-94.
9.
The two countries with the most advanced ethanol production and distribution systems are the United States
and Brazil. Which statement about the ethanol markets in the United States and Brazil is correct?
a.
b.
c.
d.
The United States enjoys a competitive advantage over Brazil in ethanol production.
Most Brazilian ethanol is used for industrial purposes and not sold to the public.
Imports of Brazilian ethanol to the United States are constrained by tariffs.
High domestic demand in both countries makes ethanol export unrealistic.
Correct answer: c
Explanation: Answer c is correct. Tariffs on imports of Brazilian ethanol prevent the market from freely
operating in the United States. Brazilian ethanol actually enjoys a competitive advantage over American
ethanol, which receives heavy government subsidies; most Brazilian ethanol is sold as E85 (85% ethanol/15%
gasoline) motor vehicle fuel.
Reading reference: Biofuels: Markets, Targets and Impacts, Timilsina and Shrestha.
14
10.
Armin is the CEO of a manufacturing plant. He is told his plant needs to reduce its greenhouse gas (GHG)
emissions by 25 tons per year. The plant has equipment installed that can remove up to 35 tons of GHG
emissions at a cost of EUR 75/ton. Gary runs a neighboring plant that must reduce its emissions by 30 tons,
at a cost of EUR 120/ton. Given this information, what is the most cost-effective strategy for Armin to reduce
his plants emissions?
a.
b.
c.
d.
Cut back on production

Switch to a lower-pollution fuel
Buy emission credits from Garys plant
Sell emission credits to Garys plant
Correct answer: d
Explanation: Armins cost for reducing GHG emissions by 25 tons will be EUR 1,875 (25 tons * EUR 75/ton =
EUR 1,875). Since Armins plant can reduce up to 35 tons of GHG emissions, he can sell 10 tons of credit to
Garys plant selling credts for 10 tons of emissions at EUR 100/ton would net Armin EUR 1,000, reducing his
reduction cost to EUR 875, while also reducing Garys costs, since 10 tons of his emissions reduction would
only cost EUR 100/ton rather than EUR 120/ton, making d the correct answer. Buying credits from Gary
would be foolish since his reduction costs are higher than Armins; reducing production would cut into
Armins profits, not a cost-effective strategy; and given the information in the question, there is no evidence
that changing fuels would reduce Armins emission levels.
Reading reference: Handbook of Commodity Investing, Fabozzi, Chapter 37, pages 845-846.
15
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corporations from more than 195 countries and territories. GARP administers the Financial Risk Manager (FRM) and the Energy
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2012 Global Association of Risk Professionals. All rights reserved. 8-3-12

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