I live in a small flat. My current direct debit has been set at £110 for several months, which (at current rates) is comfortably higher than it needs to be. In fact, just three weeks ago (23 September) OVO was urging me to lower it to £87:
Today, however, (14 October) I logged in to find OVO recommending £108 instead:
To be clear, there has been no change in my (OVO-estimated) Future Annual Consumption, nor have any actual readings been submitted in the past three weeks. The sole reason for the difference is that the earlier recommendation was based upon anticipated usage up to 23 September 2024, whereas today’s figure is based upon how much OVO expects me to use by 31 March.
If minimum direct debits are to be calculated on a 6-monthly basis from now on, customers are going to be faced with high direct debits over the winter and lower direct debits over the summer. We’ve been told that the great benefit of direct debit is having a payment which smooths out seasonal differences. Well, there goes that argument.
Thankfully I’ll not have to increase my direct debit this time around, but I feel for those customers who will face a minimum payment hike going into winter as a direct result of this new method of calculation. Somebody please reassure me it’s just a glitch.
Best answer by MCH59
Updated on 07/02/25 by Abby_OVO
How does OVO work out my monthly Direct Debit?
To work out your monthly Direct Debit amount, we:
look at your energy use so far and estimate how much you’re likely to use by 31 March 2026. This includes any costs, such as standing charges and add-ons
take away your current balance, factoring in any credit or debt
divide the result by the number of payments left until 31 March 2026, which gives us your monthly amount
We aim to bring your balance to £0 by 31 March 2026. This way, you won't owe us anything, and we won't owe you anything, making it easier to manage your energy costs.
We regularly check your Direct Debit to make sure your balance is on track.
We’ve got some really helpful topics all about Direct Debits that may be useful here:
As you have spotted, the Direct Debit calculator changed earlier this week. If you are on a fixed plan, the calculations takes you to the end of your contract and, if you are on the variable Simpler plan, it will now calculate to the end of March 2024.
There is some logic to revolving it around March, because that is when the average consumer who is paying the same amount, month after month, would generally be expected to have their lowest balance (ie around zero if you they are paying the suggested amount) before starting to build up a credit balance through spring, summer and early autumn.
I THINK it will still work it out over 12 months, but now everyone’s 12 months starts on 1st April.
I haven’t really had a chance to test it yet, but at first glance, the furtive bit seems to be that it now seeks to ensure that you NEVER have a debit balance on your account if you pay the minimum . .. but that is subject to testing and I could be entirely wrong about that
In my case it reduced the minimum payment by almost 10%. although that makes no difference to me because I deliberately pay more. than the suggested. for peace of mind in winter.
A bit like you’ll have to get off of Windows 7 sooner or later - Firefox won’t support you beyond September next year and then things will really start to break for you.
For anyone reading this with short term issues regarding Direct debits.
You can always try calling ovo collections and asking if they will freeze Direct debits at a lower level for 3 months. You can then repeat this once in 3 months time.
This is often recommend by the moderators for a variety of situations. Obviously I don't know what they will agree in individual circumstances.
0800 0699 831
The Ovo moderators also often post about the option of requesting a refund of credit if you have short term issues managing finances for example or have built up what looks like a large balance. You can request some online but may need to phone up. The moderators often post this:
If you’re on a fixed rate tariff, you’ll still be required to keep one month's worth of direct debit as credit in your account. If you’re on the Variable tariff you aren’t required to leave any credit on your account, although it is advisable.
Supposing no changes to tariff or annual consumption for the sake of simplicity, should my required minimum monthly payment revert to £87 from 1 April 2024?
Not necessarily. The ‘minimum monthly payment’ - or Recommended Direct Debit (RDD), as OVO like to call it - depends on both the predicted annual cost (PAC) and the current state of the account. If you’re currently in credit, then the RDD will be less than 1/12 of the PAC, but if you’re in debt, it will be more.
Looking at the DD calculator’s Cost chart, hovering over each column will show you what each month is predicted to cost. This is PAC/12, seasonally adjusted. Under the old system, you would have seen the cost for what’s left of this month on the first column and for the first few days of the same month a year hence on the last of the 13 columns.
Now you see exactly the same as before, but only up to and including March next year. This works out from today 16 October at about 52% of your PAC. So the calculation now is [(0.52 x PAC) ± current balance] / [no. of DD payments left between now and 31 March]
± would be + for a balance in debit, – for a credit balance.
From 1 April onwards, assuming you did arrive at a zero balance by then, your RDD would simply be PAC/12. Paying this would build up credit over the summer, to finance the bigger-than-average monthly costs during the following winter.
So if you currently have a balance in debit, OVO is attempting to get you to pay off your accumulated debt by 31 March at the same time as you’re paying for the energy being used. This is why the RDD has increased significantly with this new system, where debt is to be eliminated by 31 March instead of by twelve months hence.
With no historical debt to pay off, from 1 April your RDD should theoretically be significantly less than it is today, but of course tariff changes make that unlikely. We’ll see how it works out.
PS
I just checked and see that @Emmanuelle_OVO has updated the DD tutorial to say more or less the same as me in a lot fewer words 😳
Yes, but it’s precisely the one-off sync issue that I’m objecting to. If I were currently paying the minimum, then the system realignment wouid have two consequences for me:
(i) I would have to pay at two different rates over the course of the next 12 months, with the higher rate kicking in immediately and unexpectedly;
(ii) I would have to pay £126 in excess of OVO’s current forecast of my annual energy costs.
Both of which seem to me reasonable concerns.
I think these are not unreasonable concerns over this winter.
I will certainly be looking out for any posters who may struggle in the short term as the new system settles down.
If we have a cold winter and potentially a sky rocketing increase in the variable tarrif in January might we see a few customers struggle big time to get their balance to zero in the time frame?
Over the last year across suppliers the number of homes in debt for energy has gone up from 2.8million to 3.2million.
I assume ovo have done some modeling of the impact on customers who typically struggle anyway?
Unfortunately the Direct Debit calculator has never been accessible on my account for some reason. It’s been that way since it was opened (I’ve never had the energy to raise it with anyone). So I’m working in the dark to some extent.
It isn't a question of paying off debt in my case, though. My account was zero in July. It was £50 in credit when both those screenshots were taken. (It's now £75 in credit following my latest payment).
What follows is my non-technical understanding of the situation, after reading all the comments (someone please correct me if I've still got it wrong...).
The algorithm for calculating direct debits was originally designed to enable customers to pay off their ANNUAL usage in TWELVE equal instalments, calculated from anniversary to anniversary. From now until 31 March, a new algorithm for direct debit calculation will be in place, which will require the customer to pay off this year's WINTER usage in SIX equal instalments.
The former algorithm (i.e. ANNUAL usage in TWELVE equal instalments) will then be reinstated, except that the anniversary date for variable accounts will be replaced by a single fixed date (31 March) going forward.
So the principle of 12 equal monthly instalments goes out the window in the short term.
Now, applying this to my specific situation. My minimum direct debit under the "old" calculating method was £87. My minimum direct debit under the "new" calculating method will be £108: that's £21 more per month. After 1 April, the "old" method will be reinstated.
I’m currently paying £110, which happens to be higher than both the "old" minimum payment the "new" minimum payment and would lead on current tariff rates to a credit balance of £280 in twelve month's time (screenshot #1).
However, I’m still going to be affected. I budgeted for £110 precisely because I thought it would be high enough above the minimum to cushion me against the next round of price cap increases (which everyone knows are coming). I figured it might also let me loosen the reins a little in terms of gas usage this winter, after shivering last year like everybody else.
OVO's latest change has instantly removed this cushion. All of a sudden, my £110 monthly payment is going to be so close to the minimum this winter that any increased heating at all will lead to an enforced increase. And of course there is no longer any possibility of it now absorbing the January price cap rise. I'm just grateful I don't have to find an extra £21 every month this winter to accommodate OVO’s bright idea. I’d have had to do so if I'd been paying the minimum.
I still find the implementation, without prior notice, of a significant change in the established direct debit calculation method very hard to square with the T&C’s. Perhaps the wording of the “Direct Debit rules” section of the T&C’s will be changed before too long (actually, I’ll make that my psychic prediction of the week).
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