How savings can be made on metered farm water costs

Water is the third biggest utility cost for most farms and despite being able to switch supplier and potentially make savings or simply get a better service, the vast majority of farms have not done so.

Businesses in England have had the right to switch since 2017, while those in Scotland have been able to change since 2008. In Wales, so far, only large-volume users (50m litres-plus) can switch.

Regulatory body Ofwat licenses about 20 retailers to supply businesses in England and Wales.

The actual water supply still comes from the same regional water companies such as Severn Trent and Yorkshire Water.

See also: Harvesting rainwater the benefits and how to do it on your farm

The Water Industry Commission for Scotland (Wics) regulates the competitive retail market and approves charging arrangements, while Scottish Water sets wholesale charges subject to Wics oversight.

When switching in England became possible in 2017, and to a limited extent in Wales, business users were automatically transferred by their water supplier to a retail operator acting as an intermediary between the water company and the user.

“When the business water market opened in England and Wales, businesses were automatically placed on deemed rates because they had not previously had the ability to choose a retailer or negotiate a contract,” says Fiston Buteriteri, contract sales consultant with NFU Energy, which advises on and organises energy and water supply for customers.

“These default rates ensured there was no disruption to supply, while giving businesses the opportunity to shop around and agree a competitive contract.”

However, many have continued on those deemed rates ever since.

Contract advantages

“The majority of farms are not on a water contract but, generally, it’s beneficial to be in contract, as this gives cost certainty, rather than being on a deemed contract, with default charges,” says Fiston.

Wholesale charges are set annually by the regional wholesalers in accordance with Ofwat’s charging rules.

However, the retail charges element can be fixed for several years, which is the part that helps with cost certainty.

These retailer charges cover elements such as administration and bill management.

For customers with multiple meters, retailers also offer bill consolidation, putting multiple meters onto one bill, itemised by meter, and making admin at the farm office end easier.  

Those with multiple sites can get competitive rates in a similar way to those in the energy markets.

Annual savings

Switching to a three-year fixed retail charges contract has recently saved a milk producer about £2,000 a year, says Fiston.

Like many others, this farmer had not realised he had been on a deemed contract with a retailer for many years.  

A dairy farm with 180-200 cows will generally use between 3,500 and 5,000cu m of water a year, at a typical cost of £7,200 for a metered supply.

Savings of £360-£720 a year can be secured by choosing a more competitive retail contract or consolidating multiple sites under one supplier, says Fiston.

As well as the potential for individual farm businesses to benefit from a check of their water supply terms, volume pricing benefits are available to farmer co-ops and buying groups by pooling their requirements and contracting as a group.

Larger farms on contracts usually benefit from a lower effective unit rate cost for water/cu m because the fixed retail element of the charges are spread across more volume.

Costs ranges

Water costs vary with volume and location – examples from NFU Energy include:

• A sheep farm with 150-250 ewes might use 200-500cu m of metered water a year at a cost of anywhere between £1.70 and £2.30/cu m, totalling £500-£800m a year
• An extremely high usage customer such as a large dairy complex or where there is food processing on farm could typically use 25,000-50,000cu m a year, paying £1.20-£1.60cu m for its water, with a total annual bill of £32,000-£65,000-plus.

Water and sewerage

NFU Energy recommends using one retailer for both water and sewerage charges, as this generally makes admin easier and may lead to a discount.

Farmers can apply for a rebate of wastewater charges, known as a non-return to sewer (NRTS) allowance.

This arises because far less of a farm’s metered water supply ends up in the public sewer network than for domestic and many other business customers.

Contract terms

The most popular choice of contract length is between one and three years, says Fiston, although terms of up to five years are offered.

Wholesale water charges are regulated by Ofwat and are the same regardless of which retailer is chosen.

However, retailers can often compete on the retail element of the bill, which, depending on the size and consumption of the business, may include: 

• Lower retail margins (difference between wholesale and retail prices)
• Longer or shorter contract terms
• Discounts for multiple sites or larger portfolios
• Billing arrangements, including consolidated invoices
• Additional account management or customer support services.

Larger businesses or those with multiple sites generally have greater negotiating power, and NFU Energy is working on building a basket of customers by pooling water requirements to help drive retail prices down further.

Easy to switch

Switching retailer is relatively easy, says Fiston, and this can be done independently or by using an agent such as NFU Energy to manage the process as well as finding the best deal and most suitable contract, with the cost of this funded by the retailer as they want the business.

Most retailers will alert customers when their renewal is approaching, typically about 60 days out from renewal.

However, he advises checking the renewal date about three months before renewal, giving time to assess the options and organise a change if that is the decision.

If no renewal is agreed, customers are typically moved onto the retailer’s out-of-contract or deemed tariff, subject to the retailer’s terms and market rules.

Some providers will automatically renew the contract at deemed rates.