So you want to… build a reservoir?

Erratic weather conditions and the climate change emergency has put the water abstraction licensing system in the spotlight, with the government committed to ending damaging abstraction from rivers and groundwater.

Restrictions on summer abstraction have become increasingly common for existing licence holders, leading to practical problems for growers managing high-value crops.

A new farm reservoir can be an opportunity for a farm business to future proof itself against the possible loss or reduction of an existing summer abstraction licence, says Stephen Locke of Shropshire-based rural planning consultant Stephen Locke Associates.

See also: How irrigation is changing on an AHDB potato demo farm

Not only can it improve security of supply, it can also facilitate the expansion of existing irrigated areas to open up new market opportunities.

But it is a process that is not without significant challenges, which include requiring a large capital investment, navigating planning requirements and the need to secure a water supply.

Where do I start?

Assessing water requirements and water availability accurately is an essential first step. The Environment Agency can help with flow levels and availability in your area but, in some cases, an independent assessment is also advisable.

At this early stage, think not only about the immediate requirement for water, but also about the longer-term development of the business and what future requirements might be.

For example, should the reservoir have capacity to carry water over from one season to the next in case of shortages, to expand production or trade water? Is is viable to share the resource with an adjacent farm?

The Environment Agency advises farmers to talk to it before making an application for a new licence. It offers up to 15 hours of free pre-application advice.

The agency will make its decision on water availability based on its local licensing strategy.

In recognition of changing pressures on water resources, all new licences are time limited, with a normal duration of 12 years. 

Will I need planning permission?

No, not necessarily. Roy Brain, principal at consulting engineers Calvert Brain and Fraulo, says if the reservoir can be located in such a way that it falls within permitted development rights (PDRs), it may only be necessary to submit prior notification.

However, prior notification does sometimes come with conditions that might need to be discharged – some of them before any construction work can commence.

Mr Brain says he often recommends that farmers make an application for prior notification at the very outset of the process to consider feasibility for a reservoir at any given location.

“An application can be made quite simply using an indicative reservoir design from our library of previous designs. This then teases out from the local authority whether or not the prior notification process might work or if a full planning application will be required.”

Tony Freezer, managing director of Norfolk-based construction firm AJ Freezer, which has built about 10 reservoirs in the past decade, says in his experience, most reservoirs can be built using PDRs.

“Nearly every one we have worked has gone through as permitted development. Normally on arable land, provided you can cover the restrictions that none of the soil will be removed and all used on the site where it has been dug up, it will be allowed under PDRs.”

If it is not possible to obtain prior notification, planning permission will be required.

If full planning permission is needed, start the discussion early, as it can be a time-consuming and costly business, says Mr Locke.

The planning process will consider matters such as flood risk, ecology and archaeology, as well as siting, design, external appearance and visual impact.

“In many cases, we advise clients to have a discussion with their local authority on a pre-application basis, as that can iron out many of the questions before you start,” he says.

“But often this requires a written submission, so factor in time to go through this process.”

If there are questions about the environmental implications of a project, request a screening opinion, which will determine whether a full environmental impact assessment (EIA) is required.

How much will it cost?

This depends on the site, size and the soil – clay-lined reservoirs are far cheaper than plastic-lined ones.

Budgets need to factor in cost of planning permission, environmental assessments, cost of licences and professional fees as well as construction costs.

A typical 10m-gallon plastic-lined farm reservoir can be built for less than £250,000, including fees, says Mr Freezer.

While the price per 1,000cu m of water reduces the bigger the reservoir, the associated fees will rise significantly.

A plastic-lined reservoir costs about 40% more than a clay-lined one.

To determine if you have suitable clay, the design engineer will request trial pits are dug and soil samples sent to a laboratory to see what the permeability of the clay is. 

How long does it all take?

Allow a minimum of two years from concept to commissioning – unless you already have a water licence agreed, in which case it can be done more quickly.

Getting the licence itself can take a year, advises Mr Freezer. “If you are someone with existing summer abstraction, the Environment Agency will probably look quite favourably at an application to swap for winter abstraction and might even give you a bigger licence for winter.”

What sites are suitable?

Advisers suggest choosing more than one potential site, considering practical issues, as well as soil type, location of site within area to be irrigated, access and services, environmental and archaeological designations, local housing, rights of way, visual impact and any underground services that may be disrupted.

Can I get a grant?

Grants have been available in the past through the Rural Development Programme covering up to 40% of project costs.

“I expect there is going to be more rural funding coming forward as the government is going to have to kick-start future investment,” says Mr Locke.

Can I get tax relief on the cost?

Special rules now apply to farm reservoirs, together with the sluices gates and generators associated with them, says Ashley Smith of accountant MHA Larking Gowen.

Under the structures and buildings allowance (SBA), for contracts entered into after 29 October 2018, an annual flat rate allowance of 2% can be claimed. The SBA will rise to 3% from April 2020.

Higher rates of relief may be available for the irrigation equipment used to distribute the water within the reservoir, which will normally be eligible for 100% annual investment allowance, as fixed plant in a structure or just as ordinary plant and equipment.

The relief here can be up to £1m/year for expenditure in 2020, depending on your business year end.

If the circumstances are right, it might be possible to put funds into a self-invested pension fund, which would build the reservoir and rent it to the business, and this could give the tax relief indirectly, suggests Mr Smith.

However, the kit would not qualify in this case, as pension schemes cannot own plant and machinery, and recent restrictions on the size of pension contributions would rule it out for many.

Will it add value to my farm?

Availability of irrigation can add up to £1,500/acre to the value of land, and is likely to become increasingly valuable because of Brexit, stresses land agent James Brooke of Bidwells in Cambridge.

“Increasingly, we will see a divergence in values of land,” he says.

“Land that is able to produce crops which are in demand in the UK – for example, vegetable crops that were and continue to be supplemented by heavy levels of imports – is going to be increasingly sought after.

“Meanwhile, the value of unirrigated, cereal-producing land, which for a large proportion of its profits is dependent on BPS, is going to fall back as the earning capacity of that land will reduce.”

However, the nature of the irrigation will become much more important, too.

Those dependent on groundwater or bore hole abstraction will come under increasing pressure, because agriculture may not be very high up the pecking order when it comes to licence renewals, says Mr Brooke.

Therefore, farmers with reservoirs are likely to be in a good position.

“Future proofing through reservoirs has been and remains a wise thing to do if your soil is dependent on water for production, but also if you want to safeguard the control of that water.”