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Why, when I have a smart meter, which shows the exact amount of money I have used on gas and electricity, is it not possible for OVO to have a variable direct debit where they take the exact amount I owe each month rather than a fixed amount? Could it be because OVO wants to earn interest on all the money it has collected from thousands of customers who have overpaid and are in credit?  This must add up to a significant sum of free money that OVO earns for doing nothing other than taking more than is owed from thousands of customers. Surely the purpose of the smart meter is to show the usage in real time, so DDs should also be set on realtime use rather than a best guess averaged out over a year where OVO earns interest on customer’s money rather than customer’s earning interest on their money. 

Howdy! Captain Buzzkill here!

Hate to say this, but OVO got rid of that option several years ago and it’s not coming back anytime soon. The whole idea of the DD method is bill smoothing - if you don’t like that then you do at least have Pay On-Demand.

 

Could it be because OVO wants to earn interest on all the money it has collected from thousands of customers who have overpaid and are in credit?  

 

Being an Energy Retailer is hard. They typically pay for energy upfront based on their forecasted customer consumption, which does mean they’re often out of pocket before customers use and pay for the energy. Retailers who purchase energy to sell to customers, usually involves forecasting consumption and then purchasing & hedging energy based on this forecast upfront.

The risks/implications of this to Energy Retailers are

Cash Flow Implications:

Since customers typically pay for energy on a monthly basis after consumption (based on estimated or actual meter readings), there’s a gap between when retailers pay suppliers and when they recoup costs from customers.
This means retailers have to manage their cash flow carefully, as they bear the initial financial burden of securing (purchasing) energy.

Risk of Under-Recovery:

If customer usage is higher than forecasted (e.g., during an unexpectedly cold winter), retailers may need to buy additional energy at potentially higher market prices, impacting profitability.
Conversely, if they overestimate demand, they risk buying too much energy, leading to excess supply that may be sold back at a loss if wholesale prices fall.

Customer Payment Issues:

Retailers are also at risk if customers delay payments or default, adding to the challenge of managing cash flow.

 

So worth just highlighting that not all Energy Retailers will have ££££££ in the bank to earn interest on. They may actually be out of pocket actually waiting for customers to pay their Direct Debit.

Energy suppliers held about £3.7Bn of DD customer credit balances at the end of June. At the same time, the sum total of customer debt and arrears (owing for more than three months) was ... about £3.7Bn. That doesn't look to me like a money-making situation for the suppliers.

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