Isratech takes new direction with solar water-heater business

Marcella Scarlett, Business Reporter

For two decades Isratech Jamaica has imported the finished product from Israe`l for sale here, but the company is now putting the finishing touches on its complex in Manchester for its graduation into production of solar water heaters.

Isratech will still import the parts for the heaters from partner Chromagen Limited in Israel but will assemble them at its factory in Kendal.

The renewable-energy company owned by the Hodara family has operated in Jamaica for two decades - its website says it was founded in 1990 but Companies Office documentation indicates it was incorporated in 1992.

The water heater operation falls under the Isratech Energy Solutions division (IES). The company is already involved in the manufacturing and installation of irrigation technology under subsidiary Jamaica Drip Irrigation Limited.

Dwight Cousins, the department manager of IES, says Isratech is wrapping up a J$15-million investment in the Kendall plant's extension and that production of the heaters will begin by January 2013.

Essentially, Isratech has been hired by Chromagen to assemble and distribute the water heaters, according to Cousins.

The new structure was near completion when the Financial Gleaner visited in mid-October, with workmen seen rendering a wall. Cousins said vent installation is next and then the final aesthetic touches.

Isratech will employ an additional five persons to work in the assembly area mainly to manage the lifting equipment, said Cousins, who notes that the industry is not very labour-intensive.

Isratech currently employs 60, plus contractors.

The new structure is 117 feet long by 27 feet wide or 3,159 square feet, and is similar in size to two other factory buildings on the property, one of which houses production space for subsidiary Jamaica Drip Irrigation Limited, and the other, the Isratech Waterworks division. The latter division is in the business of water treatment and the supply of water systems in partnership with another Israeli company called WaterMatic.

Isratech is also in the process of seeking approval to import the water heater parts. The paperwork was being prepared for submission to JAMPRO and the Ministry of Industry, Investment and Commerce, Cousins said.

Isratech is the sole distributor of Chromagen solar water heaters in Jamaica and the Caribbean. It also offers maintenance and repair services for the heaters it installs.

The agreement with Chromagen Limited transitions the relationship between the two companies from supplier to business partners.

"It is some type of franchise agreement, because they will dictate to us the standards which we are to operate by and basically supply us with all the parts or raw materials and equipment that we need; and then we will put together the finished product here in Manchester," said Cousins.

No cost benefits for clients

The new plant will also supply Isratech's regional markets, which are currently in Cayman Islands, Dominica, Belize, Guyana, Barbados, Trinidad, The Bahamas, St Kitts & Nevis, Costa Rica and Panama, Cousins said.

The agreement has cost advantages for Isratech, but it will not translate into lower prices for clients. Isratech supplies households, real estate developers, companies, and organisations with its heaters and photovoltaic systems. Seventy per cent of its market is residential and 30 per cent commercial, according to Cousins.

"What this will do is ensure that prices are kept at their current levels as this is a cost-saving mechanism for the company," Cousins said.

He said that Isratech's margins per heater sold has been getting smaller over time, as the prices quoted by Chromagen are fixed in US dollar whereas the product is priced for sale in Jamaican currency, which has been losing value.

A typical solar water heater comprises a tank and a panel which is mounted to be exposed to collect heat from the sun. The tanks supplied by Isratech currently range in size from 120 to 300 litres, or 32 to 80 gallons. The factory will assemble similar size heaters.

The solar panel incorporates copper, which is a conductor of heat.

"The copper collects radiation from the sun. The water travels through the coil up to the tank, then there is a hose on the tank that connects it to the copper coils in the panels and the water travels downwards back in the tubes and the cycle continues," Cousins explained.

"So the water basically moves around in a circle. On a hot day, the water moves around the panel about four times," he said.

The cost of a basic water heater unit is about J$95,000 for the equipment and installation, which, Cousins said, pays for itself in under two years at electricity rates of US$0.35 per kWh.

Cousins said that Isratech has been exploring the assembly of solar water systems for "some time now", but due to the size of the demand, they had to keep importing the finished product as the markets were initially small.

However, domestic demand is on the rise as Jamaicans increasingly seek alternatives to, or ways to reduce consumption of, electricity supplied through the national grid, whose prices sit at or around US$0.40 per kWh.

"What our principals have found is that it is more economical to import the parts and assemble here," said Cousins. Isratech is owned 50.1 per cent by Israeli Shalom Hodara, who has adopted Jamaica as his home, and 49.9 per cent by Nessa Gay Hodara.

"We have been getting demand from a number of projects such as a Gore scheme, the WIHCON developments, Caribbean Estate, several hospitals ... a lot of them use our water heater so we have been getting a bigger market, and we have had to be coordinating delivery all the time; so sometimes we have to keep lean stock in order to supply our customers quickly or keep large amount of inventory that you can just dish out when you ready," said Cousins.

"So what we are going to do is keep it as components that you can quickly manufacture as needs arise. It will be less expensive for us to get it here and assemble rather than to have panels sitting in the warehouse."

Isratech also expects to save on shipping costs and logistics, saying the system, when not assembled, takes up less space and that the company, therefore, would get more economic benefits out of each shipment, the IES department manager said.

He explained that the water heater systems physically degrade in storage and that it is best to minimise the number of assembled heaters held in inventory.

Also, parts are easier to store as they are smaller, lighter and easier to handle than the assembled heaters, which would require "forklifts to move them around in the storeroom," he said. "The panels are delicate too; you don't want to be moving around glass unnecessarily."

There is demand for water heaters in the cooler parishes of Manchester, St Elizabeth, and parts of St Ann where heaters are a staple in households.

"In these areas, people bear the cost of electricity or they would just boil a kettle and get a basin and dip up from the basin - or a lot of people just grit their teeth and run under the shower," he said.

The expected lifespan of a Chromagen water heater is more than 20 years, with the equipment requiring servicing every five years. Servicing costs range from J$7,000 to J$10,000, said the Isratech executive.

"There is only one wearing part in the water heater and it is a sacrificial part, as the water heater will not stop working if the part is missing," he said.

"It is a rod of magnesium that basically rots away so that the system does not. This will go after about 10 years. If it is not replaced then the tanks will rot away faster," Cousins said.

marcella.scarlett@gleanerjm.com