ASSESSMENT OF DISTRIBUTION TRANSFORMERS

USING LOSS CAPITALIZATION FORMULAE

S. Corhodzic *, ** and A. Kalam **

* Schneider Electric, Transformer Division, Benalla, Australia

** Victoria University of Technology, Melbourne, Australia

Abstract

Electrical utilities are increasingly required to operate their networks more efficiently and to
reduce the total real running costs of equipment. The additional requirements to meet remote
global commitments such as managing emissions of greenhouse gases in conformance with
various protocols make design of electrical distribution systems and the selection of equipment
more complex. The widely used method in selecting the most economical distribution transformer
design is simple capitalization of transformer losses. A number of Australian authorities currently
use one formula for the evaluation of total operating costs for all distribution transformers under
all service and loading conditions. This paper presents the analysis of that method and
recommends new solutions for assessment of distribution transformers suitable for particular
applications in different types of electrical distribution networks.

1. INTRODUCTION In the last 10 to 15 years the Australian practices for

Electrical distribution supply authorities are
increasingly required to operate their networks more
efficiently and to reduce the total real running costs of
their assets. The most economical solutions are often
in contradiction with the best possible technical
practices and/or locally approved traditional methods.
The additional requirements to meet remote global
commitments such as managing emissions of
greenhouse gases in conformance with the Kyoto
Protocol and Greenhouse Challenge Agreements [1]
make the selection of some equipment and design of
electrical distribution systems more difficult. This
paper deals with current Australian practices in
selecting electrical distribution transformers.
There are numerous reasons, which prevent
distribution transformers in Australia from being
standardized and catalogued products. The most
obvious ones are huge differences between regional
utilities / network operators in required voltage ratios,
tapping ranges, maximum losses, no load voltages,
short circuit impedances, limiting dimensions,
accessories and service conditions. The compatibility
with existing apparatus often imposes additional
restrictions on the selection of equipment.
the selection of distribution transformers for
particular applications have been simplified and
reduced to two steps:
1. The compliance with basic technical details
outlined in the tendering documents;
2. The capitalization of transformer losses.
The second step has been further simplified by
applying one formula for the assessment of total
operating costs for all distribution transformers under
all service and loading conditions.
A number of Australian authorities currently use the
loss capitalization formula, which has been taken
from the ESAA/AEEMA (Electricity Supply
Association of Australia / Australian Electronic and
Electrical Manufacturers' Association) specification
for pole mounted distribution transformers [2].
That method does not recognize transformer overload
capabilities and does not allow for improved
transformer designs. Moreover, it is completely
unacceptable for large distribution transformers,
which have a different ratio between no load losses
and load losses in comparison with smaller pole
mounted transformers. This paper presents the
analysis of that method and recommends new
solutions for particular applications in different
distribution networks. The presented material deals
with oil-immersed ONAN cooled distribution
transformers 100 kVA – 4000 kVA, rated up to 33
kV and could be easily extended to other types of
distribution transformers.
2. LOSS CAPITALIZATION FORMULA
In the mid 1970’s the sharply increased cost of
electrical energy forced electrical supply authorities to
recognize the critical importance of the cost of
electrical losses. The electrical utilities developed
various formulas for the evaluation of electrical losses
[3].
Although some Australian electrical utilities still
evaluate distribution transformers solely on the basis
of the initial capital cost, most of them consider a
range of capital and operating cost as an important
factor in the evaluation process. It is not clear yet how
the recent privatization of some of the Australian
electrical distribution businesses will affect the
balance of technical and economic considerations in
their transformer purchase decisions. It is obvious
that in order to reduce short-term capital constraints
and to meet shareholders expectations, preference
could be given to products with lower initial capital
costs.
The most widely used method for the evaluation of
distribution transformers is the Total Owning Cost
(TOC) method. The TOC method proposes that in
purchasing any item of plant or equipment the
following two costs have to be considered:
1. The initial capital cost;
2. The operating cost.
The latter cost for a transformer is the cost of
supplying the no-load loss and the load loss, so the
total owning cost (TOC) is:
TOC = C + K1* NLL + K2 *LL
(1)
where
C = initial capital cost (purchasing costs) [$]
K1 = no-load loss evaluation factor [$/W]
K2 = load loss evaluation factor [$/W]
NLL = no-load loss at nominal voltage [W]
LL = load loss at 750C [W]
As a general rule, transformers with lower losses use
more and better materials for their construction and
thus cost more. The evaluation process becomes
essentially a comparison between two types of
transformer designs: High loss (low cost) design and
Low loss (high cost) design.
It is extremely important that the absolute values of
loss evaluation factors K1 and K2 are calculated
accurately. They could significantly influence the
minimum of the TOC function as all gains in
relatively low capital costs could be marginalized by
extremely high running costs (as a consequence of
unrealistically high loss evaluation factors) and vice
versa. Unfortunately the tools required to determine
the loss evaluation factors are quite complex and
some Australian utilities use less rigorous methods or
adapt coefficients already developed for similar
applications. An example for that is the widely
adopted practice in using loss evaluation factors from
ESAA/AEEMA specification for pole mounted
distribution transformers [2] for all distribution
transformers.
2.1 Determination of loss evaluation factors
The following table presents the range and commonly
used values (*) for coefficients K1 and K2:
Country K1[A$/W]/ K2[A$/W]/
*commonly used *commonly used
USA 4.5-7.5/*6.0 1.5-3.5/*2.0
Germany 7.0-20/*13.0 1.5-8.0/*3.0
UK 5.5-10/*7.5 1.0-2.0/*1.5
Australia 5.0-7.2/*6.3 1.2-2.5/*1.8
Table 1. Loss evaluation coefficients
The ESAA/AEEMA document [2] proposes the
following values for loss evaluation coefficients for
distribution transformers of 100 kVA and above: K1
= 6.3 $/W and K2 = 1.8 $/W. Unfortunately, the
ESAA/AEEMA document does not provide
information about methods used in determining these
coefficients and the applied loading considerations.
This paper has no intention to question the origins of
those coefficients. However, the use of inappropriate
coefficients for the evaluation of transformer losses,
could mislead in selecting the most suitable
transformer for a particular application.
Firstly, the calculation of loss evaluation coefficients
depends on the type of transformer being considered,
its size and service and loading conditions.
In addition, the current economic situation, interest
rates, cost of capital and methods in predicting calculate the value for p very accurately. On the
changes of all above factors in expected transformer contrary, when semi-urban and rural networks are
life (25-30 years) have to be considered. employed (long lines with varying loads), the
annualized charges per kW of maximum demand are
Finally, there are slight differences in assessing a much more difficult to calculate and usually are 25-
distribution transformer operated by an industrial 40% higher than in urban networks. However, in
owner and a distribution transformer operated by an some cases when large investments in capital
electrical utility. The latter is more complex because generation and transmission objects are required, the
of daily and seasonal load variations and possibilities absolute value for annualized charges per kW of
of a load growth. The unpredictability of the new maximum demand is difficult to predict.
energy market adds more uncertainties in the process K1,K2 [$/W]
K1/K2
of loss capitalization. The performances of K1 K2 K1/K2
distribution companies in energy trading and abilities 10 4.0
in predicting future trends could significantly
influence the calculation of loss evaluation 8 3.8
coefficients.
6 3.6
The following scenario could produce the loss
evaluation factors widely used by Australian supply
4 3.4
authorities. If we assume the following:
r = Interest rate [6.25%] 2 3.2
t = Expected transformer life [25years]
f = Capitalization factor
0 3.0
p = Annualized charge per kW of maximum 50 100 150 200 250 300 350
demand [102 $/kW] Annualized charges per kW of max. demand [$/kW]
D = Demand factor [0.65]
Fig.1 Coefficients K1 and K2 as a function of annualized
q = Energy cost [0.05$/kWh] charges per kW of maximum demand
LLF = Loss load factor
LF = Load factor 2.3 Impact of load factor on loss evaluation
K1 = No-load loss evaluation factor[$/W] factors
K2 = Load loss evaluation factor [$/W]

( )
Equation (6) has been developed assuming that the
f = (100 /r )* 1 − (1 + r )−t = 12.485 (2) daily loading diagram is similar to that as shown in
D = Max. demand / Trans. rated power = 0.65 (3) Fig. 2.
LF =Average load / Maximum Load = 0.75 (4)
Load [%]
LLF = 0.5* LF + 0.5 LF 2 Load %
(5) 80
K1 = f * ( p + 8760 * q ) (6)
60
K 2 = f * D * ( p + 8760 * q * LLF )
2
(7)
40
Consequently, K1= 6.3 $/W and K2 = 1.8 $/W.
20

2.2 Impact of annualized charges per kW of 0

maximum demand on loss evaluation factors
Fig.1 presents the impact of annualized charges per
kW of maximum demand (p) on loss evaluation
factors. As those charges increase, both coefficients,
K1 and K2 increase, and the ratio K1/K2 decreases.
These charges are unique to particular utility and
could vary significantly (100-500$/kW). Utilities with
largely urban, fully established networks, which are
characterized by short, medium to heavily loaded
distribution lines and highly concentrated loads could
0 4 8 12 16 20 24
Time [h]
Fig. 2 Typical loading diagram
The load shown on the y-axis represents the
percentage of the transformer rated power. This
loading diagram could be adequate for a typical
application with a lightly loaded pole mounted
transformer. However, where a complex loading
pattern is required (including daily and seasonal
peaks, short overloads, etc.) a completely different
approach should be used.
Fig. 3 shows variations in loss evaluation factor K2
when load factor has been changed over a range of
60-100%. The load factor (LF) is defined as a ratio
between average (RMS) load and maximum demand.
Load factor [%]
20 1 TOC. However, there are important additional
120/K2
16 0.8 100/K2
80/K2
12 0.6
60/K2
K2[$/W] 120/LF
8 0.4
100/LF
4 0.2 80/LF
60/LF
0 0
50 70 90 110 Max. Demand [%]
Fig. 3 Factor K2 and Load Factor as functions of maximum demand
The curves in Fig.3 are calculated using daily load
pattern similar to that as shown in Fig. 2 (8+8+8
hours), with maximum demands 60, 80, 100 and 120
% of transformer rated power. The coefficient K1 is
in all cases 6.3 $/W. However, the load loss
evaluation coefficient K2 could be anywhere between
1.8 $/W and 9.1$/W. It seems that the Australian
practice of applying 1.8 $/W for coefficient K2 is a
rough approximation.
The above discussion should be extended to include
the impact of other relevant technical and financial
factors.
The huge regional differences in energy costs, system
capacity costs, loading patterns and cost of capital
will produce quite different loss evaluation factors for
different utilities. The distribution transformers in
Australia have already been considered to be highly
customized products and applying one set of
coefficients for different supply authorities, which
operate under different circumstances, cannot be
easily justified.
3. PRACTICAL CONSIDERATIONS IN
DISTRIBUTION TRANSFORMER DESIGN
Once both loss evaluation coefficients are accurately
determined, they will be included in tender
documents together with other specific technical
requirements. The transformer manufacturer shall use
those coefficients in designing transformers with the
lowest possible TOC for particular set of coefficients.
3.1 The loss ratio
The objectives of the transformer designer are to meet
purchaser’s expectations regarding lowest possible
requirements (e.g. need to meet expected profit
margins using standard manufacturing techniques
and materials).
It has already been shown [4] that for maximum
operating economy (only costs of losses considered),
the ratio of full load losses to no load losses should be
equal to the ratio of the no-load loss evaluation factor
to load loss evaluation factor:
LL/NLL = K1/K2
(8)
K1/K2
K1/K2
8
6
4
2
0
15 30 45 60 75 90 105 120
Average load [% of P NOM]
Fig. 4 Typical loss ratio as a function of average (RMS) load
Fig. 4 and equation (8) indicate that as the load loss
increases (because of increasing loads) the desirable
ratio between no-load losses and load losses
decreases, ultimately leading to well-known condition
for the highest possible transformer efficiency when
NLL = LL.
The equation (8) could wrongly suggest that the
optimum value of loss ratio gives the TOC
significantly lower than those resulting from other
loss ratios. The detailed analysis performed on
Schneider-Electric distribution transformers, shows
that even significant deviations from the theoretical
optimum loss ratio could provide extremely method (determination of the desirable loss product
competitive designs which satisfy all technical for given costs) should be used for the analysis of
requirements and represent the most practical designs, which belong to the same set of designs (e.g.
solutions from the manufacturers point of view, the designs B), with very small differences in prices. The
latter being very important because of implications on minimum TOC method indicates that design B is the
the final selling price. The above observations are optimal solution. It is the highest priced option, but
based on assumptions that the loss product is kept having the lowest losses still provides the lowest
constant and that all compared transformers have the lifetime cost.
same production costs.
There are usually at least 2 or 3 designs, which comes
3.2 The loss product very close to the lowest TOC. Some supply authorities
apply the range of 100-105 % of the minimal TOC
The designer controls the price of a transformer since increasing the number of possible choices and
the production cost (PC) relates to the no-load losses ultimately trying to purchase the transformer with the
(NLL) and load losses (LL) as: lowest initial costs within that range. This method,
which is called the Band of Equivalence, has been
PC = X / ( NLL * LL) used by some North American utilities. Although this
(9) method could help to reduce initial capital
investments and preserve capital in the short term, a
where X is a factor which depends on particular rigorous analysis could prove that this method does
transformer size and type. Lower transformer losses not appropriately include risk analysis. Some studies
increase its production cost PC and selling price C. estimate that over 80% of all buyers apply the Band
of Equivalence or similar approximation method [5].
It is possible to calculate the optimal product of Occasionally the same method is used to select
transformer losses using methods developed in [4]: transformers with the lowest losses (usually more
expensive transformers). If that is the case, or
transformers with the lowest TOC are extremely
NLL * LL = Y * 3 1( K1* K 2) expensive, an additional method called the Test
(10) Discount Rate could be used to justify the initial
higher investments in high cost transformers. For
The factor Y could be expressed as a function of fixed example, the purchasing price for design B is $5,500
annual cost C: higher than for design C and the saving in TOC is
only $700. It is recommended to check all
Y = const .*3 C 2 assumptions made (especially loading diagrams), as
(11) minor changes in loading patterns, and consequently
loss evaluation coefficients cannot justify the
Some typical representative design data for three sets expenditure of the additional $ 5,500 initially. The
of designs of a 1000 kVA transformer have been application of that rate is a common practice in the
shown in the Table 2. UK and further research should prove its feasibility
under Australian circumstances.
Designs A Designs B Designs C
Price C[$] 18000 25000 19500 4. CONCLUSION AND RECOMMENDATION
NLL [W] 2500 1200 1800 FOR FURTHER RESEARCH
LL [W] 15500 13000 14000
LL/NLL 6.2 10.8 7.8 Capitalization of losses is a widely accepted method
K1 [$/W] 8 8 8 for assessment of distribution transformers. However,
K2 [$/W] 1.4 1.4 1.4 the current Australian practice is somewhat too
K1/K2 5.7 5.7 5.7 simple and a better understanding of applied factors
X 641 390 504 and methods is needed.

TOC[$] 59700 52800 53500 Most methods applied in Australia do not recognize
transformer overload capabilities and do not allow for
Table 2. Typical design data for 1000 kVA transformers improved transformer designs. The loss evaluation
coefficients developed for pole mounted transformers
Those sets of designs are very different and are unacceptable for large distribution transformers,
consequently the X factor is not constant. The above with much higher ratio between no load losses and
load losses. The use of inappropriate loss evaluation [2] “ESAA/AEEMA specification for pole mounted
coefficients could jeopardize the complete tendering distribution transformers”, January 1998;
process. [3] T.H. Harrison, B. Richardson, “Transformer
The appropriate method includes full financial Loss Reductions, CIGRE International
analysis of transformer losses. The prediction of Conference on Large High Voltage Electric
future cost of capital and loading cycles should be Systems”, September 1988;
more rigorous. The impact of service conditions
should be included. [4] “Magnetic circuits and transformers”, MIT El.
Eng. Course Book, 1943;
It has already been mentioned that the reference
temperature for load losses is 75 0C[6]. The initial [5] “Transforming Dollars in Sense”, ICF Inc.,
results of the research about impacts of lower Report prepared for EPA, 68-D4-0088,1998;
reference temperatures on TOC indicate that the
reference temperature 75 0C puts some limitations on [6] AS Series 2374-1997 (1-7), Power transformers.
transformer designs. The lower temperature limits
will promote optimized low loss transformers and
dual name plate rating. The same approach could be
applied to the kiosk substation distribution
transformers, in which full rating inside the kiosk
enclosure has been a unique Australian feature.

The impact of possible load growth and diversity

factor for load losses for transformers operating in
parallel or close to each other should be
accommodated in the assessment method.

As loading cycles and costs of energy and power vary

between “industrial” and “utility” distribution
transformers it is worthwhile to encourage the use of
distinguished loss evaluation coefficients.

An important non-cost factor has not been included in

the above discussions. This is an additional factor to
the TOC and takes into account the overload
capability and failure rate of a particular transformer
design, compliance with non-critical technical
requirements, past performance of a particular
manufacturer, delivery time, additional technical
services offered (stocking, transformer management,
forecasting assistance, product improvements and
updates) etc.

5. ACKNOWLEDGMENT

The authors would like to thank Faculty of

Engineering and Science, Victoria University,
Melbourne and Transformer Division, Schneider
Electric, Benalla for technical support and research
facilities.

6. REFERENCES

[1] “Kyoto Protocol to the United Nations

Framework Convention on Climate Change”,
1998;