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Electrical loss reduction: Economics and contracts

How Indian tariffs turned power factor into money

What this tab covers Economics and commercial structures: levelised cost of the recovered energy against the fuel it avoids, host-site risk, and service models such as heat-as-a-service.

Loss avoidance and power factor correction pay well because losses and tariffs are continuous. Heat reuse from electrical kit competes with heat pumps and gas boilers.

Levelised cost of heat or avoided cost

Favourable

In India, power factor is priced directly. Before 2020, Maharashtra's regulator charged HT and larger LT consumers a penalty below a power factor of 0.90 and paid an incentive above 0.95. From 1 April 2020 it moved HT consumers to kVAh billing (charging for apparent energy), which builds the penalty into every unit, with LT consumers above 20 kW to follow. The current MSEDCL tariff order (Case 217 of 2024, 1 April 2025 to 2029-30) cut industrial tariffs; this check did not confirm its power factor terms. At a power factor of 0.75, 100 kWh bills as about 133 kVAh, against about 111 kVAh at 0.90, a 20% higher energy charge (calculated). In ABB's example, a low-loss transformer costing USD 4,100 more earns a 39% IRR over 20 years at USD 130/MWh (vendor case). UK transformer heat with a heat pump cost GBP 107.58 to 117.44 per MWh, up to 17.2% cheaper than air-source heat pumps but about 13% dearer than gas boilers.3910122122

Maharashtra PF thresholds penalty below 0.90, incentive above 0.95 (pre-2020 regime)10 kVAh billing effect, PF 0.75 vs 0.90 about 20% more billed energy (calculated)9 Transformer heat LCOH GBP 107.58-117.44/MWh12 Low-loss transformer IRR (vendor case) 39% (20 years, USD 130/MWh)3

Host factory credit risk

Favourable

The equipment is generic and can serve another load, and capacitor banks and drives can be moved. Stranding risk is low. Transformer heat recovery is tied to a substation and a nearby heat network, but grid substations rarely close. The host's credit matters mainly where a third party owns the kit and is paid from shared savings.12

Heat-as-a-service and ESCO models

Mixed

Transformer heat schemes bring together network operators and heat providers. Full Circle partnered UK Power Networks with SGN Commercial Services, Arup and Atelier10. The UK study also cites an SSE and National Grid pilot from 2021. Metro reversible substations are bought by transit agencies as infrastructure; Alstom had sold 136 Hesop units by 2025. This pass did not source named ESCO contracts for power factor correction in India.71213

Hesop reversible substations sold 136 (2025, company figure)7

Sources

  1. Transforming revenue: ABB's technology cuts transformer losses (ABB Review 2/2015; vendor case) ABB, 2015
  2. Capturing wasted energy in our cities (Hesop reversible substations; company press release) Alstom, 2025
  3. kVAh billing: frequently asked questions Maharashtra State Electricity Distribution Co. (MSEDCL), 2019
  4. Methodology for power factor penalty and incentive (MERC order in Case 195 of 2017) Maharashtra State Electricity Distribution Co. (MSEDCL), 2019
  5. Heat recovery opportunities from electrical substation transformers (Lagoeiro, Davies, Marques and Maidment), Energy Reports 10, 2931-2943 (open access) Elsevier, 2023
  6. Full Circle (transformer heat recovery project) UK Power Networks, Strategic Innovation Fund, 2024
  7. Commercial Circular No. 323: implementation of MERC MYT order in Case 322 of 2019 (kVAh billing) Maharashtra State Electricity Distribution Co. (MSEDCL), 2020
  8. General Circular No. 107: MERC tariff order for MSEDCL, Case 217 of 2024 (industry chamber summary) Deccan Chamber of Commerce, Industries and Agriculture, 2025