It is widely known water affects combustion in the engine as water will effect combustion. What is less well known is water in biofuel can have a significant impact on the fuel chemistry, since part of the manufacturing process produces water in forming the biofuel ester. Water contamination can actually reverse this process and split the fuel into its individual components of fatty acids and alcohol.
If you have a high water in your biofuel, to remove water the best practice is to first drain off the bottom of the tank any free water. Then you have a few options to remove the rest. Your filter supplier will be able to offer some water removal filtration systems. Additionally on larger systems with large storages of fuel you could consider active venting systems that drive dry air across the top of the tank to remove water.
Finally once corrected it's important to followup with a sample for our full biofuel suite to confirm the fuel has not been adversely effected by the water present. If all is well the next steps are to find preventive measures to stop this happening again such as dessicant breathers to prevent moisture from the air entering the fuel.