Power Transformer Efficiency – survey results and

assessment of efficiency implementation

Žarko Janić1, Anthony Walsh2, Adesh Singh3, Yordan Botev4
1
Končar Power Transformers, A joint venture of Končar d.d. and Siemens AG, J. Mokrovića 12, Zagreb, Croatia
2
ESB Networks, Dublin, Ireland
3
Total Transformer Consulting, Johannesburg, South Africa
4
Hyundai Heavy Industries, Sofia, Bulgaria
E-mail: zarko.janic@siemens.com

Abstract—Cigre working group A2.56 Power Transformer Efficiency conducted a survey among utilities worldwide to
determine how maximum allowed losses are managed in their existing specifications of transformers – whether the losses are
capitalized and how the load and no load, loss factors are calculated etc. Findings of that survey will be presented in the paper.
Index Terms— power transformer, efficiency, capitalization, power loss

I. INTRODUCTION

Globally, policy makers are trying to influence transformer specifications by introducing specific rules on minimum
transformer efficiency. A survey conducted by the Cigre working group A2.56 Power Transformer Efficiency gives
insight on how efficiency is defined in the procurement process in utilities around the world, with the aim to understand
how loss levels are defined and what is the actual state. In the survey, distributed through the Cigre organization, 30
completed answers were received from 22 countries from 5 continents. Unfortunately, a majority of feedbacks (18
responses; 60%), were coming from EU countries. Most of the companies (23) indicated that they are transmission
operators or vertically integrated companies. Most of the text below is taken from the preparatory work for the technical
brochure [1]

II. CAPITALISATION

One of the key conclusions from the working group, that will be published in the upcoming Technical brochure, is that
capitalization of losses is the key to ensure that overall lifecycle costs are minimised. This also applies to any other
network component. Capitalisation is not used to minimise transformer losses, it is used to minimise the investment
required to obtain the greatest energy savings for the least cost, arising from lower loss transformers. This in turn results
in the selection of transformers whose losses are economically optimal, but not necessarily minimal. In essence the process
of capitalisation involves the calculation of the value today of the savings from losses over the lifetime of the transformer.
This involves considerable uncertainty in the volume of kWh savings, the value of each kWh saved (which will vary over
time) the discount rate used over the 30 - 50 years period, all of which must be estimated in order to arrive at the present
value of the losses saved. It is generally recognized that the most economic result will arise when the Total Costs of
Ownership (TCO) is evaluated, where the initial cost of the transformer plus the associated losses are considered together.
In this manner savings in initial purchase costs from buying an inefficient transformer are balanced by the higher level of
losses incurred, and vice versa, with increased savings in losses by the higher initial purchase price. The principles of
capitalization are well explained in the literature and were covered extensively in Eurelectic submissions to the EU
EcoDesign Transformer groups [2] and also [3], [4] and [5], also there are a lot of works where practical analysis using
capitalization are made e.g. [6] and [7]. A very simplified information is given below to simplify the understanding of
further reading.

TCO = Initial Cost + Capitalised Losses (1)

Capitalised losses = A * NoLoadLoss + B * LoadLoss (2)

A = PVn * C0 * 8760hrs (3)

B = PVn * C0 * TLLF * 8,760hrs (4)

PVn = f(n, d,…) (5)

A – capitalized price of kW of no load losses €/kW

B – capitalized price of kW of load losses €/kW
PVn – Present value factor over n years at a particular real discount rate (including growth)
C0 – price of electric energy (EUR/kWh)
 TLLF – Transformer Loss Load Factor
n – capitalization period (years)
d – discount rate – typically WACC (but can be modified to allow for load growth)

III. SURVEY RESULTS

Obviously, the capitalization depends on a number of factors and the aim of the survey was to understand if and how
these principles are used, or which other approach is used in defining transformers. As the results are collected via an
excel file and not by interview it is possible to have some misunderstandings and wrong answers, but hopefully that is a
minor part that should not have much influence on the overall picture.

Out of the 30 responses 15 responded that they are giving maximum loss levels and 19 responded that they are giving
capitalization values (several use both). It has to be said that all combinations exist - with use of maximum levels or
capitalization, or both.

The period for which the capitalization is being calculated is important as it defines the period for which the cost of losses
is being taken into consideration. The problem with defining this period is that it is the period over which a saving in
losses will be accrued, which is not necessarily the lifetime of the transformer, it is the duration for which this transformer
will be energized and save losses. Obviously one limit will be the expected ‘manufactured’ lifetime of the transformer
but there is also the possibility that the transformer will be replaced before it’s ’manufactured’ lifetime expires either due
to an uprating to cope with increased load, replacement initiated by a change of system voltage (e.g. from 10kV to 20kV),
deterioration (e.g. rusting) where due to the advance of technology it is cheaper to replace by new unit with lower losses
and which has a full potential lifetime on installation. or other.

Results gathered from the survey are presented in Fig 1. One of the responses, 10 years, is for a special project where this
is the investment horizon, so it should be looked at as an exception. There is quite a variety of results, varying from 20 to
50 years. However, as the impact of savings which are made in the far future is very small due to the impact of counting
the actual impact on loss evaluation is much less significant. This can best be appreciated by comparing the PV factors
for 25 and 50 year capitalizations as shown in Table 1. It can be seen that whilst the 50 year period is twice as long as the
25 year period the actual ratio between the losses included is much less- 18% extra – which is the ratio of the PV factors
i.e. 13.8 for 50 years and 11.65 for 25 years (at 7%,) giving an 18% increase in capitalized losses.

Fig. 1 – Period used in the capitalization calculation

The price of energy used to calculate the capitalization values is also one of key factors. There the results differ
significantly. Obviously, the prices are very different in different countries, but the range is from as low as 10€/MWh up
to 80 €/MWh, although most of the results are in the range of €30-€40/MWh which would be in the expected range for
gas fired marginal plant. However on closer examination it is apparent that the lower end prices are from countries using
Hydro or Coal, and those where gas is marginal fuel tend to use €40 – €50/MWh.

Some other factors also play a major role, particularly the discount rate and assumptions on load growth rates. In Table 1
the impact of varying capitalization periods and discount rates on the Present Value factor (PVn) are shown. The Table
shows that if the capitalization period is 20 years and discount rate is 3%, then a cost generated by energy losses of 1
EUR per year, will be worth 14,88 EUR in today’s money over this period. Simplified, this is the capitalised value of the
cash flow over the period at the interest rate chosen and based on this the value of future loss savings can be calculated
in today’s money.

Table 1 – Influence of period and discount rate on present value of annual losses savings

Capitalisation Discount rate

period (years) 3% 5% 7%
20 14,88 12,46 10,59
25 17,41 14,09 11,65
30 19,60 15,37 12,41
35 21,49 16,37 12,95
40 23,11 17,16 13,33
50 25,73 18,26 13,80

The survey responses are shown in Figure 2, sorted in an ascending order. As it can be seen the rates vary from 3% up to
11%. In general, South America has high discount rates (10% – 11%) and EU rates are around 5% with Australia/Oceania
at 9%. However one EU country is using 3%.

The discount rate has a very significant impact on the calculation of capitalization factors (€/kW) due to it’s large influence
on the annuity factor PV e.g. for a 40 year period using 3% gives an annuity factor of 23.11 versus 13.33 for 7%, a near
doubling, as the annuity factors are very sensitive to the discount rate used, although relatively insensitive to the
capitalization period

12,00
Discount rate used (%)

10,00

8,00

6,00

4,00

2,00

0,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14
No. of Answer

Fig. 2 – Discount rate used

Whilst there is scope for several PhD’s in the consideration of the appropriate discount rate to be used the following
criteria are pertinent:

(a) The losses saved are a societal benefit, persist for long numbers of years, are fairly certain and if being produced
by a Government. would be evaluated at a ‘societal discount rate’.
(b) A ‘societal discount rate’ is a low discount rate which has no inbuilt finance risk (as Government is assumed to
be able to fund investment by tax and without risk) and the value of the discount rate used is supposed to reflect
the long term opportunity cost of the capital employed. In the UK a figure of 3.5% is used, and in the EU
EcoDesign Directive a figure of 4% was used, and this is meant to represent the long-term opportunity cost
society of an investment in this project.
Developing countries typically have greater opportunity costs so discount rates in South America will be greater
than in EU.
In using societal discount rates for discounting losses saved no allowance for risk of the expected benefits being
achieved is included.
Accordingly there is a requirement to include the expected uncertainties in the cash flows of the estimated losses
being discounted, as there is significant uncertainty over the valuation of the losses saved – essentially this is a
prediction over 40 years of what loading and loss will occur on the transformer, what the future price of electricity
 will be, how long these savings will persist and what discount rate is applicable.
As the investment in the transformer is being made by a utility which has different opportunity costs and carries
financial risk the investment costs should be discounted at the companies cost of capital (WACC), which is a
much higher rate than the societal discount rate.
This approach is probably the most ‘pure’ approach but requires a lot of work to estimate the uncertainties in the
cash flows being discounted, as ignoring this area will result in an overvaluation of the losses.
(c) Alternatively a cruder approach is to use a larger discount rate for both savings and investment and assume the
uncertainties are included – typically the company WACC as set by the regulator is used e.g. 5%
(d) This is a simple approach but assumes that the risk of an investment in reducing losses carries the same level of
risk as other typical risks borne by the company, which is incorrect as investment in loss reduction is significantly
riskier than typical utility investments.
So a premium (1-2%) should be added to the utility WACC to more correctly reflect extra risk.
Additionally, as less developed economies have higher opportunity costs they should use higher discount rates, even
within the EU. Occasionally load growth rates can be accounted for by adjusting the financial discount rate, so that the
rate used is a combination of load growth rates and financial discount rates e.g. a 5% discount rate combined with a 1%
load growth rate would result in an effective composite rate of 4%. However it can be seen that the rates used by utilities
in the survey can be justified – less developed economies had higher discount rates, more developed economies lower.

A small difference in choosing discount rate, energy demand increase or similar can have a considerable impact on the
capitalization factors. The value of the capitalization of losses can easily be of a similar magnitude as the initial cost of
the transformer, so a difference of 1% in the discount rate can have a considerable impact on the optimum design. This is
one thing to look for when such processes are handled by a third party (EPC or similar).where the EPC may use a high
discount rate as capital is scarce whereas the final user may have a much lower WACC and would benefit from the return
on reduced losses.

Additionally, a new factor to take into account is the availability of ‘Green Bonds’ whereby the financing of certain energy
efficiency investments can be funded through the use of ‘Green Bonds’ which are available at a slight discount if the
environmental criteria are met.

In the second part of the survey examples were requested to assess typical losses levels/efficiency. Data from a total of
109 transformers was received.

One of the data items requested was the transformer load factor and transformer loss load factor used to calculate the
capitalization factor. Data on the load factor for 55 units was received, but loss load factors for only 42 units.

1
0,9
0,8
0,7
Load factor

0,6
0,5
0,4
0,3
0,2
0,1
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57
Response

Load factor used for capitalisation Load loss factor used for capitalisation

Fig. 3 – Load and load loss factors used for capitalisation

The transformer load factor is the average of the loading of the transformer in terms of the transformer rating. Transformer
loss load factor is the average value of the loss factor, which can vary between the extremes of being equal to the
transformer load factor and the transformer load factor squared. Typically it is taken as the square of the transformer load
but is sometimes estimated more exactly as a linear combination of the transformer load factor and the square of the
transformer load factor e.g. 0.85* TLF2 + (1-0,85)*TLF.

In Figure 3 the collected factors are shown. In the VITO report [8] there is an overview of available data on the loading
factors. For smaller transformers loading factors are typically from 30-40%, while for transmission transformers it is
lower and and is about 20%. Transmission transformers formed the majority of the transformers in this study. The loading
factors in Figure 3 seem rather high and where levels of around 70% are encountered disagree with the load factor inferred
from the capitalization rates, which is about 40-50% ((Sqrt (€LL/€NLL) = Load Factor)

It is possible that there was confusion between the terms load factor and transformer load factor. The load factor is simply
the ratio of the average load to the peak load, but is unrelated to the transformer rating. To establish losses the Load Factor
must be related to the transformer rating as transformer losses are quoted at full load. So a 100kVA load with a load factor
of 90% on a 200kVA transformer would have a transformer load factor of 45% based on the transformer utilization factor
being 50% (=100kVA/200kVA) and the Transformer Load Factor then being 45% (=0.9*0,5 )

Use of peak efficiency index (PEI) on power transformers means that the ratio of copper to iron losses can be optimized
to match the transformer load factor encountered. So higher loading factors increase the importance of load losses and
decreases the importance of no load losses. As a result of that it is optimum for the manufacturer to use more copper in
order to lower the load losses instead of decreasing losses in the core. If only the PEI value as provided in the EU Directive
is used the manufacturer will manufacture the cheapest transformer which meets the Regulation but which will not be
matched to the load usage and hence minimize overall losses. Providing the load factor as well as the PEI overcomes this
issue (- similarly providing the capitalization factors is even better because not alone do the capitalization factors infer
the load factor they also provide guidance as to how far in advance of the PEI it is worthwhile to optimized the
transformer.)

One of the obvious questions is whether the transformer specified with maximum losses have higher or lower losses than
the ones specified by capitalization factors, as capitalization is searching for an economic optimum not lower losses. In
Figure 4 the gathered data are shown. For an easier understanding of the data EU Tier 1 and Tier 2 are included.

0,999

Max loss
0,998
Capitalisation
PEI

Tier 1
0,997
Tier 2
Power (Max loss)
0,996
Power (Capitalisation)

0,995
0 100 200 300 400 500 600
Rated power (MVA)

Fig. 4 – Peak efficiency index (PEI)

Although there is a lot of scatter, it can be seen that efficiency of transformers purchased using capitalization is on average
higher than those purchased using maximum losses. This is because use of maximum losses puts a limit on losses for
which the transformer will be designed as the manufacturer will not be rewarded in the tender for providing lower losses
(- if for no other reason that the benefit of the lower losses cannot be evaluated in the Tender). In contrast the process of
capitalization does not provide a lower limit to the losses and the manufacturer is not disadvantaged by optimizing the
transformer design and this is rewarded in the tender process. Accordingly capitalization results in a cost optimal
transformer of high efficiency.
 It is also seen in the survey that some utilities use the EU EcoDesign Regulation as an upper limit to the loss levels, with
capitalization factors then used to assess whether lower limits are justified and if so facilitate their inclusion in the tender.

Note: Some utilities establish economic loss levels using capitalization prior to tender, and then use the loss levels so
established to provide fixed values of losses so as to simplify the tender process. However this is not as good as simply
using capitalization values in the tender as the establishment of the fixed losses without involving multiple manufacturers
is difficult.

The remaining factor in the survey is the price of electricity used and this should be the energy component of the wholesale
price, excluding any fixed costs but including variable O& M costs and including the cost of carbon. Typically costs in
EU are in the range €40 - €50 but in countries where coal is predominant costs are significantly lower e.g. €16/MWh, and
may not include a premium for carbon.

As the cost of electrical energy can vary over time the actual price used should be a discounted average of the forecast
price over the duration of the investment. However this is very difficult to establish and in the past the capitalization
values are more sensitive to the discount rate and period than the electricity price, so using the current price is the norm.
However with increased use of renewables the marginal cost of electrical energy all approaches zero and the value of
losses will be defined by the impact on system services and network capcity required due to peak losses. One utility
currently includes the cost of the impact of losses at peak on network and generation capacity requirements and this has
a significant effect on the capitalization rate used.

IV. REGULATION IMPACT

In the last part of the survey experience with efficiency regulation was investigated. In most of the countries in the on
survey there is a regulation in place. Most of the responders see very small or no impact on Power Transformer purchase
costs as they were already close to the EU requirements. However there were significant increases in costs associated
with transportation and installation where critical limits on weight or dimension were exceeded. Some of the responses
are reporting a change in power transformer dimensions but are not reporting any associated problems other than where
critical limits are exceeded.

In relation to distribution transformers one utility commented that the use of fixed values for iron and copper losses was
less flexible than the use of PEI allowed for power transformers. This lack of flexibility meant that the transformer could
not be designed for the load involved and this led to extra losses e.g. Transformer losses were weighted toward a reduction
of iron losses yet with Electrification of heat and transport it is copper losses that should have been minimized. Use of
PEI would have allowed the transformer design to match the expected load factor which would have been more efficient
and economic.

V. CONCLUSION

The results of the survey show that utilities around the world are putting effort into efficiency of transformers and
procuring transformers that meet or exceed efficiency levels defined in Regulations.

However the use of PEI provides scope for further reduction in losses as it allows the transformer to be designed to match
the load, either minimizing copper or iron losses as appropriate.

This in turn suggests that the use of fixed losses for distribution transformers is sub-optimal and efficiency could be
further increased using PEI.

Many utilities use the regulation as a lower limit on losses and capitalization values to further optimize the transformer,
as can be seen from Fig 4. However utilities have the opportunity to invest in other equipment than transformers. In cases
when capitalization suggest that optimum design is a less efficient than the regulation, a larger reduction of losses for the
same investment would be available in some other equipment.

The main conclusion is that there is still a potential to increase the knowledge of people involved in the procurement
process so that by altering the specification the costs can be decreased further and efficiency increased.
VI. REFERENCES

[1] Z. Janic, A. Walsh, E. Virtanen et. al, “Power Transformer Efficiency”, Cigre Technical broschure, in
preparation non published

[2] A. Walsh, “Consultation on Tier 2 Fixed Loss Levels on Distribution and Power Transformers
implementation”, Eurelectric, March 2017

[3] “Purchase and operating Cost for Transformers”, EEA, New Zealand, July 1996

[4] “Guidelines on the Calculation and use of Loss Factors”, Electricity Authority Te Mana Hiko, 2013

[5] J. Harlow, “Electric Power Transformer Engineering”, CRC Press, 2004

[6] Z. Janic, “Improvement of power transformer design in order to reduce stray losses”, PhD thesis, Faculty of
Electrical Engineering and computing, Zagreb, 06.06. 2008

[7] Z. Janic, R. Sitar, M. Pandya, “Use Of Fem Tools For Stray Loss Optimization In Transformers”, The 16th
International IGTE Symposium on Numerical Field Calculation in Electrical Engineering, Graz, Institute for
Fundamentals and Theory in Electrical Engineering - IGTE, 2014, 35-35

[8] Final Report LOT 2: Distribution and power transformers Tasks 1 – 7, VITO, Study for European Commission
DG ENTR unit B1, 2011