Dow Bets On New Solar Film Technology To Make Solar Energy Viable

DOW: Dow logo

The Dow Chemical Company (NYSE:DOW) recently introduced ENLIGHT Polyolefin Encapsulant Film technology, which it claims will increase the electrical efficiency and reliability of solar panels and reduce overall costs. [1] This could prove beneficial to solar panel manufacturers who are currently going through a rough time. The films are manufactured by Dow Packaging and Converting, part of the Performance Plastics & Materials division of the company.

The best solar panels currently achieve efficiency of around 14-15% and cost well over a dollar per panel, which is, overall, highly inefficient relative to conventional sources of power such as coal and hydroelectricity. Further, U.S. solar makers face a long-term threat from Chinese manufacturers, who are able to sell their products at far lower prices due to lower manufacturing costs. The difficulties facing the industry is exemplified by U.S. solar maker Solyndra which filed for bankruptcy despite having financial backing from the Department of Energy (DOE) and several VCs. [2]

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However, solar energy is gradually becoming more viable, and the technology developed by Dow has the potential to contribute to the emergence of solar as a large-scale source of power. The technology has the potential to transform Dow’s fortunes as well, and that depends on its level of acceptance among solar power makers, the company’s commitment to scaling up the product, and the growth of the sector as a whole.

The company has been going through a difficult time lately, with most of its divisions posting operating losses and declining volumes. Management has made it clear that it does not expect substantial improvement in the near term. The Performance Plastics & Materials division, which makes up around 56% of total revenues and 59% of the company’s value per our estimates, has faced steep declines in margins and volumes over the past few years.

Volumes have declined around 8% since 2010, reflecting decreasing demand for the division’s products. EBITDA margin for the division stood at around 19% for the first half of 2011, and has declined to around 15% in 2012. This was largely because of commodity cost increases, which could not be matched by pricing increases due to depressed demand.

We currently have a Trefis price estimate of $31 for Dow, which is about 5% above the market price.

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  1. Dow Press Release, August 2012 []
  2. Solar Energy Firm Solyndra Enter Bankruptcy, Seeks Buyer, WSJ, September 2011 []