Total owning cost, not first cost

Loss capitalisation turns a purchasing decision into an engineering one. If you are not designing against the buyer's A and B factors, you are designing against the wrong objective.

19 June 2026 · 7 min read · Commercial

What capitalisation means

Utilities and large industrial buyers evaluate offers by adding the purchase price to the capitalised value of the losses over the expected life. The no-load loss is multiplied by one factor, usually written A, because it is present whenever the unit is energised, and the load loss by a second, usually B, weighted by the expected loading.

The evaluated total, not the price, decides the award. That means a more expensive transformer routinely wins, and a cheaper one routinely loses, and both outcomes are perfectly rational for the buyer.

The factors change the design, not just the price

A high A factor pushes the optimum towards a lower flux density and a better grade of steel, because every watt of no-load loss is being bought at a high price. A high B factor pushes towards more copper and a lower current density. When A is high and B is low, the two pull the design in opposite directions and the optimum core-to-copper split moves substantially.

This is why the same works will offer visibly different designs to two customers with the same rating and the same guarantees. If your design does not change when the capitalisation factors change, you are not optimising, you are quoting a standard product.

Where the optimum actually sits

The evaluated cost as a function of, say, flux density is a shallow curve with a clear minimum. Shallow is the important word: there is usually a range of designs within a fraction of a per cent of the best evaluated cost, and they differ in ways that matter to the works, such as core diameter, tank size and whether a standard radiator fits.

So the useful output is not a single optimum but a set of near-optimal designs with their trade-offs visible. Choosing among them is a manufacturing decision that the designer should make with the numbers in front of them.

The discipline this imposes

Designing to total owning cost only works if the material rates in the calculation are current and the loss figures are trustworthy. An optimiser fed stale copper prices will confidently recommend the wrong design, and an optimiser fed optimistic building factors will recommend a design that fails its guarantee.

Optimisation amplifies the quality of your inputs in both directions. That is an argument for optimising, and a stronger argument for verifying first.