Martin Lewis: Energy bill credit – how much is too much? Stop the rip-off and get back £100s, by understanding the monthly direct debit energy cycle…

Update 26 March 2024: This blog was written in May 2023, since then those on prepayment meters cannot be charged more than those who pay by direct debit. The new price cap for April to June 2024 has also been announced, with average prices for direct debit users falling by 12%, and by 14% for prepay users. But the logic of the direct debit cycle remains the same.

Is your electricity and gas provider unfairly sitting on £100s of your money? Over 65% of us pay energy bills by direct debit – the cheapest way to pay. However, monthly direct debits give firms the chance to build up a reservoir of customers' cash. Yet interrogating an energy firm's data shows that right NOW, May, is the PERFECT TIME to stop the rip-off and get that money back!

This isn't simply a case of 'if you're in credit, you're owed cash'. To set your monthly direct debit, most firms take your annual cost and divide it by 12 (a few do it seasonally), aiming to smooth things out so you avoid high use winter bill shocks. It's a good budgeting concept, one I'd probably call for them to introduce if it didn't exist, but you need to understand...

We're meant to spend part of the year in energy credit, part in debit – and the key is to know where you should be at, when!

The problem is the implementation, not the concept. Monthly direct debits are based on an estimate of usage, and these estimates can be dire, leaving many unnecessarily overpaying with too much credit or underpaying and getting into energy debt (so give regular meter readings, or get a smart meter, so the energy firm doesn't have a way to blame you).

This bad estimation pain has exacerbated the energy bills crisis over the last couple of years, especially as people have cut their usage.

So to ensure you're in the right position, you need to understand the direct debit cycle. To help, below I've an energy firm's internal data, which is eye-opening and effective. And it's well worth spending a few minutes on, as I get huge numbers of successes – this is just one of many people who have got their cash back...

Two key direct debit must-knows to start…

1. Direct debit is the cheapest way to pay, so don't ditch it unnecessarily. Plus when the switching market is open, there tends to be far more direct debit deals and options than other payment methods.

Still, I know some hate monthly direct debit. If you're ditching it, you need to understand 'payment in receipt of bills', which most go to, costs 7% more (from 1 April 2024, it'll cost on average 6% more). Far better would be to check if your supplier offers variable direct debit, where unlike monthly direct debit, what you pay each month isn't set, it's simply based on your usage – and this is still at the same cheap direct debit price. Just budget for big winter bills.

Or if you're willing to top up when needed, prepayment meters, which from July 2023 will, at least on the price cap, be at the same price as direct debit (from 1 April 2024, prepay will be around 3% cheaper than direct debit).

2. Ensure your direct debit is set fairly. As prices have moved (gone up) a lot, so have direct debits, and some are heavily out of kilter with use. And all has changed again since the removal of the £66/month energy support payment. To check that, see our Is my direct debit fair? guide, including the Direct Debit Calculator, where you can plug your figures in to see what's about right.

The energy direct debit cycle

Prefer to watch? The clip below has been taken from ITV's Good Morning Britain on Wednesday 3 May 2023, with the permission of ITV Studios. All rights reserved.

Embedded YouTube Video

Clearly, we use less energy in summer than in winter. Yet below is internal data Octopus Energy kindly gave me pre-energy crisis (though the cycle won't have changed much). What's fascinating when you look at this data is the time lag.

The pattern is what counts, but just for clarity, this is the pattern for someone with a £200 a month dual-fuel direct debit, with a zero balance on 1 January.

  • Early May is the baseline for when you should have minimum credit. While the midpoint of winter weather is around the end of January, it takes until May for your energy debt to stop increasing. So early May is when you should have the minimum credit. In this scenario, you'd have nearly two months' worth of debt.

    So if you're substantially in credit in early May, then that is too much.

  • Early November is the time you should have maximum credit. It's after summer's peak, in late August, by the time you're actually in credit, with that maxing out in November. So you would want that buffer zone of a month or two's worth of credit then.

Now it is important to note exactly how this works out depends on when you started the cycle. I've a couple of quick graphs to show you that.

For someone who started with the firm in May

For someone who started with the firm in November

Are you in too much energy credit?

Always first check your meter readings are up to date. Then look at whether you're in energy credit or debt and compare it to the first graph.

The perfect time to do this is in May, when a normal situation would be to have little energy credit or be a month or so in energy debt – so if you've a lot of credit then, it's too much.

Alternatively look in November, when you'd expect to be at most two and a half months in energy credit. If you've far more, it's likely too much (though it does depend on how prices are moving).

- Too much credit? Get your cash back. Condition 27 of energy suppliers' licences is that they must take reasonable steps to ensure direct debit levels are fair, and to explain the level they're set at. So call up and ask – there may be a justifiable reason. 

(It's worth noting that firms set direct debits based on current prices, not future, so right now when we know prices are likely to drop in July, that's not factored in, but will mean you likely need even less credit.)

If not, the rules state that if too much credit has accumulated and a customer asks for it back, suppliers must refund it – or clearly explain why not. If they don't, then you can make a complaint via Resolver, which will auto-escalate problems to the Energy Ombudsman if it's not sorted.

One firm does promise automatic refunds if your credit's too high on the anniversary of you joining, yet all the rest require you to check.

Energy firms' refund rules

Energy provider Does it automatically refund any credit?
British Gas No. If you're in credit at the end of your 'plan year', it'll reduce your direct debit. You can ask for a credit refund – it is not automatic.
EDF Energy If you're in credit at your account review, it will be used to reduce your direct debit or will be automatically refunded if it's over £150 and based on an actual meter reading.
E.on Next You can ask for a credit refund – it is not automatic.
Octopus Energy You can request a refund at any time, but you need to give a meter reading, or have a functioning smart meter, so it can check the refund won't leave you likely to get into significant debt on your account.
Ovo Energy You can request it if you have more than £5 in credit and give a meter reading.
Scottish Power You can have credit automatically refunded at each account review.
SSE You can request it if you have more than £5 in credit and give a meter reading.

PS: Old providers may still owe you cash, too. When you switch energy firm, you should be given all your credit back. Yet for years many firms operated 'don't ask, don't get' policies. Most of them have been behaving better for a long time now, but if you think you did miss it, it can still be worth trying to ask for it back. More help on this in reclaim old energy credit.

- In too much energy debt? If you owe far more than you should for the time of year, your energy direct debit is likely too low. That may seem like a win in the short term, but it's storing up trouble for the future.

Fail to deal with it and you'll likely see a hugely hiked direct debit in the future, forcing you to catch up, or a huge one-off bill if you switch elsewhere (that's if you're allowed to; big energy debt can stop you switching, even if it'd cut your bill).

So don't delay – speak to your energy firm about increasing the direct debit. If it's unaffordable, speak to your energy firm and see our Struggling to pay energy bills? help guide for more.