Dow Expands Its Solar Sector Ambitions With NuvoSun Acquisition

The Dow Chemical Company (NYSE:DOW) is reported to have acquired NuvoSun, a thin-film solar firm. ^[1] NuvoSun develops Copper Indium Gallium Selenide (CIGS)-based thin-film solar cells, which have a much higher absorption coefficient than the most prevalent silicon cells. Although the CIGS based PV cells are not as efficient as the silicon based cells, they are closing the gap quickly. ^[2]

The fact that PV cells based on CIGS semiconductor are much thinner than the silicon based ones allows them to be more cost effective due to the lower cost of materials and fabrication involved in manufacturing. Dow’s Powerhouse integrates these cells in the asphalt shingles. The lower cost CIGS solar cells that NuvoSun is working on can help Dow tap the rapidly growing solar rooftop market more effectively.

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According to the Solar Energy Industries Association (SEIA), the U.S. domestic PV installations more than doubled in 2010 and then again in 2011. In 2012, PV installations are estimated to have grown at a rate of 70%, almost five times the expected growth rate of 14% in the global market. ^[3] The rapid growth has largely been fueled by lower prices of PV modules due to overcapacity in the industry. However, lower utility bills leading to positive returns on investment and government subsidies are also responsible for the sharp growth seen in the segment.

The installations in the residential segment grew at the rate of 12% q-o-q during the third quarter of 2012. This segment has been the most stable in the U.S. market. Going forward, we see the positive trend continuing as the manufacturing costs of solar panels decline and technology driven enhancements in energy conversion efficiencies make solar power a competitive alternative to coal and gas.

Dow is seeing quick growth in the rapidly growing Building Integrated Photovoltaics (BIPV) market. Dow’s Powerhouse integrates thin-film CIGS photovoltaic cells right into standard asphalt shingles. In December, Dow announced a major expansion of its Powerhouse solar shingle availability to homeowners in New York, Connecticut, Maryland, Massachusetts, D.C., Louisiana and Michigan. It is expected to expand further in 2013, as homeowners increasingly adopt the idea of solar rooftop for its economic viability in regions of high utility tariffs.

Moreover, we expect further development and improvement in the deposition methods used for thin-film PV cells by NuvoSun that will allow much lower cost per watt going forward. This will not only mean higher margins for Dow’s Powerhouse business, but it can also lead Dow to gain a larger share of the overall solar power market.

We currently estimate Dow’s coatings and infrastructure segment market share to remain stable at around 6.7% over the forecast period. However, if the company is able to better tap the rapidly growing solar rooftop market with more efficient products and increase its market share to around 10%, this would imply 10% upside to our current $33 price estimate.

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1. NuvoSun, CIGS Solar Startup, Acquired by Dow Chemical, March 6th, 2013, www.greentechmedia.com [↩]
2. Solar Cell Efficiency Round-Up: Thin Film Closing the Gap with Silicon, January 25th, 2013, www.renewableenergyworld.com [↩]
3. Solar Market Insight Report 2012 Q3, www.seia.org [↩]