In an ideal transformer, it is assumed that there are no energy losses, and, hence, all the power at the primary winding is transferred to the secondary winding. However, in reality, the transformers always have some energy losses, and, hence, the output power obtained at the secondary winding is less than the input power at the primary winding due to energy losses.

There are four main reasons for energy losses in transformers.

The first cause can be the high resistance of the copper windings of the primary and secondary coils. When current flows through these windings, some energy is lost in the form of heat due to the Joule heating effect. To minimize such losses, thick copper wires of considerably low resistance are used to make windings.

There are also energy losses through hysteresis in the core. The repeated magnetisation and demagnetisation of the iron core caused by the alternating input current leads to the retention of magnetization of the core even when the current becomes zero. This is known as hysteresis. The losses due to hysteresis are minimized by using soft iron with a narrow hysteresis loop.

Another important mechanism for energy loss in a transformer core involves eddy currents. Since the core of a transformer is made up of a conducting material, any cross-section of the core behaves as several conducting circuits, one within the other. The flux through each of these circuits continuously changes, so eddy currents circulate in the entire volume of the core perpendicular to the flux. These eddy currents set up an opposing flux leading to energy loss through heating. The effects of eddy currents can be minimized by the using a laminated core. Laminated cores are a stack of thin sheets or laminae. The large electrical surface resistance of each lamina, which is due to either a natural coating of oxide or an insulating varnish, effectively confines the eddy currents to the individual lamina. Since the paths become narrower in each lamina, the induced emf becomes smaller in each path, which reduces the eddy currents considerably.

Another important parameter for energy loss in a transformer is leakage flux. Flux losses occur due to design errors in transformers. When the magnetic flux produced in the primary coil is not completely linked with the secondary coil due to leakage, flux is lost. These losses can be minimized by using a shell-type core.