Going independent can sound attractive. With a number of businesses choosing to ‘self-supply’ their water, we thought we’d reflect on this and look at the findings of a recent study.
So, what is self-supply? It means having your own self-supply water licence, so you can deal directly with wholesalers and industry regulatory groups. It may seem a tempting shortcut to reducing costs for your business. But is it as easy as that?
Self-supply involves more than you might think, such as having to obtain a license and having the right resources in place. This is because self-supply means you’re expected to perform all the business activities a retailer would usually do for you, and in doing this you’ll have to conform to all the regulatory requirements too.
To start, applying for a self-supply license has an application fee of £3,000 and takes up to 45 working days. On top of this, you will incur other costs such as: annual fees to MOSL, costs of maintaining the appropriate security status to access CMOS, and the general administrative costs of operating and complying in the market (Ofwat 2019). Furthermore, self-suppliers are subject to market performance standards, so you could incur penalty charges if you failed to meet the required standards.
Of course, self-supply can have some advantages – if you want to be more hands-on it might be good for you. Self-supply means you’d have direct access to your wholesaler and you’d be able to read your own meters. But, with all things taken into consideration, it’s unlikely you would save much money because of the time and resources spent on fulfilling retail obligations.
So, that’s what self-supply means. It’s different from using a water retailer because you’d have to do all these things yourself. Another difference is that with self-supply you have to pay your water wholesaler in advance for water, instead of after you’ve used it through a retailer.
Working with retailers like us is just so much easier and you can benefit from wider water management services to make savings. But don’t take our word for it – we asked an independent research body to find out.
Cornwall Insight, a fully independent research and consultancy group, undertook a study to find out about ‘innovation in the water retail market’. Their paper discusses progress made so far, barriers to further improvements, biggest areas of opportunity, and learnings about self-supply (Britton & Buckley, 2018 – published in March 2019).
Cornwall Insight call self-supply “a more complex sort of commercial proposition” (B&B, p8). They confirm that self-serving is complicated and means that businesses must obtain a self-supply license and all resources needed to perform retail activities themselves.
The paper points out that 52% of switches are based on a desire for low prices (Ofwat, 2018) – yet on average only 10% of the price a business pays for water is under the control of the retailer and therefore available to save through self supply (B&B). These figures mean we know that customers care most about prices, but that there isn’t much leeway for savings.
Cornwall Insight believe that self-supply savings, made by removing fees paid to a retailer, would be tempered by paying for a self-supply license and having to handle your own retail services (B&B). This means that retail fee savings would be balanced out by expensive licensing obligations.
They also suggest that businesses self-supplying will be exposed to regulatory risks, due to becoming a licensed party and being required to meet the market performance standards. Failure to do this makes you liable for penalty charges. (B&B). This means that adhering to standards would be no easy task and risks fines.
Cornwall Insight conclude that “for the majority of companies, self-supply’s benefits are likely to be no greater than a wholesale plus tariff” (B&B, p9). This means that, once you’ve paid all the various fees associated with self supply, the cost is likely to be similar to if you’d have used a retailer like us.
This information was taken from Cornwall Insight’s 'Innovation in the Water Retail Market: One Year On'. We encourage you to give it a read if you’re interested in the progress of the new business water market.