The Dow Chemical Company
(
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. 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.
See full analysis for Dow
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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