Google's newest project to bring people into its ecosystem is an online solar calculator that is supposed to let consumers easily evaluate the costs and benefits of solar panels and decide if an installation is a good idea or not. The company's new product is called Project Sunroof but consumers who get too excited about a third party opinion on the value of solar for their home may be in for a disappointment.
Project Sunroof is an interesting concept and it combines Google's unparalleled Google earth with other data to evaluate how much solar panels might save a consumer. The first challenge though is that for many consumers, Project Sunroof simply is not available. Google's project started as a pilot program available in just a few areas, and it was recently rolled out to 15 more major areas around the country. Unfortunately, even if you live in one of these areas, it is a good chance Google may not be able to say anything about your house in particular. For instance, in Connecticut, where Google cites the service now being available, many houses in many towns across the state still cannot be tested using the service.
Just as importantly, Google's service is based on its own data which are just estimates of actual usage. For instance, using a five-story apartment building address in the calculator and looking at the total savings if the entire flat building roof were covered in solar panels, Google's calculator projected present value savings of $4,000 for a twenty year panel life. That number is obviously far too low. The area in question - Hartford, CT - has very high electricity prices, and a five story building containing 70 apartments would likely save that much money in the two years if it were on solar power especially given there are no trees in the area and the roof is not shaded by any nearby taller buildings. Related: Rig Count: Capitulation?
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Another major issue with Google's calculator is that it builds in often questionable assumptions to determine the value of using solar power. For instance, some have noted that Google is using an 8 percent interest rate for its loan calculations. Just as importantly, Google is using a 4 percent discount rate to determine the present value of the savings an individual achieves. While discount rates are always subject to some debate, 4 percent is a very low rate given the inherent riskiness involved in solar power. One risk for instance is that if its cloudy more often than expected, energy output is less than expected. Related: Crashing Oil Prices And Dropping Rig Count Take Their Toll On U.S. Output
None of this is to suggest that Google's new calculator is not a neat idea or that it won't eventually be useful. For a select few users, the tool is probably even useful now. But most people still need to take its suggestions with a very large grain of salt. Calculators often lead people to ignore the underlying assumptions and treat the out they receive as the gospel truth. In the case of Project Sunroof that is certainly unjustified.
Google's project will ultimately be beneficial for consumers and the solar industry. On the industry side for instance, it can be used to help target specific properties that are most appropriate for solar power. On the consumer side, the calculator would certainly be a welcome outside opinion on the merits of solar. Unfortunately, Project Sunroof is not ready to play a serious role in either of those uses at present. For now, the tool is largely an object of curiosity and hope for the future which is perhaps appropriate since that was the status of solar power itself not so long ago.
By Michael McDonald of Oilprice.com
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Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance… More
