Which Harmonic Filter Business Are You Building?

A harmonic filter removes or cancels the distorted current that variable frequency drives, rectifiers, UPS systems, LED drivers and EV chargers push back into a building's wiring. Nobody buys one because they want a filter. They buy one because a transformer is running 20 degrees hotter than its rating, a capacitor bank has failed twice, a utility has written about a power quality breach, or a new connection offer has been made conditional on a harmonic study. Your business plan has to be written around that trigger, because the trigger decides who pays, how fast, and how much.

Founders who search for a harmonic filter business plan usually mean one of four different companies. They share a product category but have different cash needs, different risks and different exit values, so pick one before you open the financial model.

This guide is written primarily for the second model, the distributor-integrator with a survey service attached, because it is the route most founders with a power engineering background actually take and the one that lenders can underwrite from invoices and purchase orders. The cost tables, the unit economics and the break-even calculator below are built around it. Where the numbers differ materially for the consultancy or assembler routes, we say so.

The plan also has to say who the customer is. Four buyer groups account for most harmonic filter orders: plant engineers at process industries (water and wastewater pumping, cement, metals, plastics), facilities teams at data centres and hospitals, electrical contractors who have been handed a failing job and need a specialist, and utilities or network operators dealing with their own substations. SP Energy Networks, for example, has a Coalburn harmonic filter project inside its RIIO-T3 business plan, which shows that the largest filters are bought through regulated utility programmes rather than catalogues. A start-up will not win that work in year one, but it should know it exists.

The First 12 Months, Month by Month

Most failed launches in this sector fail on sequencing, not on technology. The founder buys a power quality analyser before securing a dealer agreement, or signs a dealer agreement before there is a pipeline to meet its minimum order. This is the order we write into plans for harmonic filter start-ups.

• Month 1: Entity, insurance, bank. Register the company (LLC in the US, Ltd in the UK), open a business account, and bind professional indemnity cover. Engineering advice that is wrong causes consequential loss, so quote for at least $1M of professional liability (£1M in the UK) before you give a single recommendation to a client.
• Month 2: Buy the measuring kit. A Class A power quality analyser with current flex probes is the one piece of equipment that cannot be borrowed. Budget $6,500 to $14,000 for a new Fluke 1777 or Hioki PQ3198 class instrument, or hire one at roughly $250 a day while you confirm demand.
• Month 3: Dealer applications. Apply to two vendors, not one. A dealer agreement with a single vendor makes your whole business a derivative of their channel policy. Expect 3 to 6 weeks for credit approval and a minimum first order.
• Months 3 to 4: First 10 free surveys. Offer a half-day logging survey on one distribution board to ten local plants. The deliverable is a two-page THD and TDD summary. Ten surveys typically produce two to four paid studies.
• Month 5: First paid harmonic study. Price it at $2,000 to $3,500 per site (£1,600 to £2,800) for a single point of common coupling with up to three logging locations.
• Month 6: First filter installation. Subcontract the electrical work to a licensed contractor you trust if you are not licensed yourself. Document the before and after waveforms; this single case study is the sales asset for the next year.
• Months 7 to 8: Referral channel. Meet the electrical contractors, panel builders and drive distributors in your region. Offer a referral arrangement on filter specification that does not touch their own installation margin.
• Month 9: First stock purchase. Only now hold inventory, and only the two or three ratings that have sold twice (commonly 50A, 100A and 200A active units, plus 22 kW to 90 kW passive line reactors).
• Month 10: Service contract. Turn the first three installations into annual inspection contracts at 3 to 5% of hardware value per year.
• Month 11: Hire. Take on a commissioning technician once billable utilisation passes 65% for three consecutive months.
• Month 12: Review against the plan. Compare actual gross margin per project against the model, update the dealer-tier targets, and decide whether to apply for the second round of funding.

Notice that the equipment purchase comes before the dealer agreement but after the insurance. That ordering protects cash. A measuring instrument has a resale market; a pallet of filters you cannot sell does not.

What It Costs to Get Started

The launch budget depends almost entirely on whether you hold stock and whether you build anything. Three realistic configurations are below. All figures are Avvale planning estimates assembled from vendor list prices, dealer conversations and the measurement-equipment market; replace them with quotes before you submit a plan to a lender.

Line-by-line for the stocked integrator

• Class A power quality analyser with flex probes: $6,500–$14,000 (£5,100–£11,000). Fluke 1777, Fluke 435-II or Hioki PQ3198 are the usual choices. Add $1,200 a year for calibration.
• Second portable logger for parallel measurement: $2,400–$6,800. Lets you log the incoming supply and the problem load at the same time, which is how a harmonic study is actually defended.
• Arc-flash rated PPE, insulated tools, lock-out kit: $3,500–$6,000. Non-negotiable under NFPA 70E in the US and the Electricity at Work Regulations 1989 in Great Britain.
• Thermal camera: $1,800–$5,500. Useful for finding failing capacitor banks and overloaded neutrals, and for the photographs that win the next job.
• Harmonic simulation software: $2,000–$12,000 a year. ETAP and SKM PowerTools are the standard names; DIgSILENT PowerFactory is common in the UK for G5/5 work. A survey-led firm can start with a lower-cost add-on to an existing power systems package.
• Opening stock: $30,000–$72,000. At a typical dealer cost of $9,000 to $11,000 for a 300A active unit, three units plus a spread of smaller ratings and line reactors fills this budget quickly.
• Professional indemnity, public liability, employer's liability: $4,500–$11,000 a year. Insurers price on revenue and on whether you design or only resell.
• Van with racking and lifting gear: $9,000–$24,000 used or leased.
• Working capital: six months of fixed costs, $22,000–$60,000, because industrial customers pay on 45 to 75 day terms and you buy stock upfront.

One cost belongs on the plan that rarely appears in generic templates: the price of the hardware itself and how wide the range is. Retail and marketplace listings for a 100A active harmonic filter run from roughly $750 to $1,700 on import marketplaces, while a Schneider Electric PCSP300 300A, 380 to 480V, IP54 active harmonic filter sits in a different class of product and price. Listings put 300A units anywhere between $3,000 and $15,000. A plan that assumes the cheapest listed number will have its gross margin rewritten the first time a client asks for a branded unit with a warranty, a UL listing and a UK service engineer.

Funding routes that fit this business

In the United States, the SBA 7(a) programme is the standard route. The SBA reported record lending in fiscal year 2025, with about 77,600 7(a) approvals totalling $37 billion and an average loan of $477,571; the median is much lower, at about $195,000. A stocked-integrator launch at $140,000 to $320,000 sits comfortably inside a standard 7(a) request. Expect the lender to ask for a 10 to 20% equity injection, a personal guarantee, and evidence that you know the industrial customer base. Equipment loans on the analyser and van usually carry lower rates than cash-flow lending.

In the UK, Start Up Loans lend between £500 and £25,000 per founder with a fixed rate and 12 months of mentoring; with two co-founders that is up to £50,000. The rate was 6% for years, and a 2026 review reports a move to 7.5% fixed from 6 April 2026, so confirm the current rate at application. The scheme suits the survey-led model. The stocked-integrator and assembler models normally need a bank term loan or asset finance alongside it, or a SEIS/EIS-eligible equity round if the product has a technical edge. Our Research + Content package is built for exactly that kind of submission.

Who Supplies the Hardware

The market is split between a handful of global automation companies and a longer tail of specialist filter makers. A reseller business lives or dies on which of these it can get terms from. The names below appear repeatedly in Polaris Market Research's company coverage, and the product notes reflect each vendor's public positioning.

Two practical points decide dealer terms. First, ask what the vendor already does directly: if a global vendor sells straight to the big accounts in your territory, your realistic market is the mid-sized plant that is too small for their key account team. Second, ask for the vendor's lead time on 300A and larger frames before you quote them. A client who has been told 14 weeks by the vendor will take your 8 week competitor, and a 14 week surprise discovered after you have taken a deposit becomes a refund.

Do not build the plan around a single supplier. List the primary, a secondary for the same duty, and a passive-filter alternative for sites where an active unit is more than the problem needs. Lenders read a plan with only one supplier as a plan with one point of failure.

Licences, Standards and Certification

Harmonic filters are not licensed products in the way a firearm or a pharmaceutical is. The regulation lands in three places: who may do the electrical work, what the product must be certified to, and what limits your client's facility must meet at its connection to the grid. Many founders only plan for the first.

United States

• State electrical contractor licence for anyone who connects filters to the building supply. Rules and names differ by state; California requires a C-10 electrical contractor licence, and many states require a master electrician to hold it. If you are an engineer rather than an electrician, subcontract the installation or hire a licensed master.
• IEEE 519-2022 is the reference for harmonic limits at the point of common coupling. For systems up to 1 kV the limits are 5.0% for any individual voltage harmonic and 8.0% THD, falling to 3.0% and 5.0% for 1 kV to 69 kV, and the current limits depend on the ratio of short-circuit current to load current, with a total demand distortion cap from 5% to 20% (Elspec summary; Power Quality Blog). The standard is a recommended practice, but utilities write it into service agreements, which makes it binding in practice.
• UL listing of the filter or its enclosure. Resellers inherit the vendor's listing; assemblers pay for their own, typically $12,000 to $40,000 and 4 to 9 months through a field evaluation or full listing programme.
• OSHA 29 CFR 1910 Subpart S and NFPA 70E for electrical safety and arc-flash work practices during commissioning.
• Professional Engineer stamp if you sign harmonic study reports in a state that requires it for utility submissions.

United Kingdom

• ENA Engineering Recommendation G5/5 (Issue 5, 2020) governs harmonic voltage distortion and the connection of harmonic sources to UK distribution and transmission networks. It extended the assessed frequency range from the 50th to the 100th harmonic, up to 5 kHz, as TNEI's analysis explains. The full text is hosted by Distribution Code Review Panel (DCode). Commercial connection offers for large loads and generation increasingly ask for a G5/5 assessment, and this is the work a survey-led consultancy sells.
• UKCA marking under the Electrical Equipment (Safety) Regulations 2016 and the Electromagnetic Compatibility Regulations 2016 for equipment you place on the Great Britain market under your own name. CE marking continues to apply in Northern Ireland and for EU sales.
• BS 7671 (18th Edition) compliance for installation, with certification by a competent electrician registered with NICEIC, NAPIT or equivalent for most commercial work.
• Professional indemnity and employer's liability insurance. Employer's liability at £5M is a legal minimum once you take on staff.
• ISO 9001 is not mandatory but is a pre-condition for tender lists at many utilities and large industrial clients.

European Union and international

• EU: CE marking under the EMC Directive 2014/30/EU and the Low Voltage Directive 2014/35/EU. IEC 61000-3-12 sets emission limits for equipment with rated currents between 16 A and 75 A per phase and is the standard a drive or filter maker is tested against; IEC 61000-2-4 sets compatibility levels for industrial plants.
• Australia: installers must hold a state electrical licence and equipment must carry the Regulatory Compliance Mark; network connection rules run through the local distributor.
• Canada: CSA certification of the filter and a provincial Master Electrician or Contractor licence for installation; Mirus International and other Canadian makers are a natural supplier base.

The commercial point for your plan: standards are your sales process. A buyer who is told that their facility must meet 5% TDD at the point of common coupling is no longer shopping for a filter, they are fixing a compliance finding. If you can write that finding into a report, you are the firm that gets the follow-on installation. For a deeper look at how compliance fits into a lender-ready plan, see our business plan writer page.

How the Money Is Made

A harmonic filter company earns from five lines, and the plan should show them separately because their margins and their cash timing differ.

• Harmonic studies and compliance reports: $2,000 to $9,500 per site, 60 to 75% gross margin, sold on day rate or fixed fee.
• Hardware resale: 22 to 35% gross margin on active filters, 18 to 28% on passive filters and reactors, depending on tier and volume.
• Installation and commissioning: 30 to 45% margin on billed labour, paid per project or day rate.
• Annual service contracts: 3 to 5% of installed hardware value per year at 55 to 65% margin; this is the line that makes the business worth buying.
• Rental or short-term hire: $450 to $1,400 per unit per month depending on rating, with returns driven by utilisation.

A worked project

A water treatment works has six variable frequency drives on its pump sets, a 400A incoming supply and a measured TDD of 14% at the point of common coupling, against a utility limit of 8%. Here is how a single project looks in the plan.

All figures in this example are an Avvale composite, not a client record. Notice that the survey contributes only 10% of revenue but 19% of gross profit, and it is also what locks in the installation. That is why the survey is priced to earn a return rather than given away after the first ten free ones. If the plant then signs a service contract at 4% of hardware value, the $15,200 unit produces $608 a year at roughly 60% margin, so ten installed units create about $3,650 a year in near-pure profit that does not require a new sale.

Hardware price pressure is real. Marketplace and import listings show the cheapest 100A active filters at around $750 to $1,700 and 300A units at $3,000 to $15,000, and a buyer who has seen those numbers will challenge your quote. Your defence is the survey, the warranty, the local commissioning engineer and the compliance report. Plan for a hardware margin at the low end of the range in year one and show lenders that service and study revenue carry the rest.

What an assembler adds

If you build passive filters or detuned reactor banks yourself, the margin on hardware rises to 35 to 50% but you take on three costs the reseller avoids: copper and laminated steel price exposure, test capacity, and the liability when a filter resonates with a customer's existing capacitor bank. Assemblers should carry a warranty reserve of 2 to 4% of hardware revenue in the financial model.

Market Size and What Drives Demand

Published market-size figures for harmonic filters disagree by a factor of three, and a good plan explains why. Most of the spread is scope: some reports count only active filters, others add passive filters, line reactors and sine-wave filters. Use the number that matches what you intend to sell.

Mordor Intelligence puts the whole harmonic filter market at $1.42 billion in 2025, rising to $1.93 billion by 2030. It reports that passive products held 59.1% of 2024 sales, that three-phase units took 81.8% of revenue, that low-voltage systems accounted for 63.2%, and that active filters will grow at 6.7% a year through 2030. MarketsandMarkets values the active segment alone at $0.76 billion in 2025 and projects $1.11 billion by 2030. A third source, Research and Markets, has the active market at $1.14 billion in 2025 and growing 10.2% a year, while the narrowest figure we found, from Verified Market Research, is $467.87 million in 2024 growing to $755.34 million by 2031.

For a start-up, the national totals matter less than three structural facts. Passive solutions hold the larger share, so the cheapest sale is a reactor or tuned filter and you should be able to supply one. Low-voltage sites are the majority, which is the territory where an independent integrator competes best against global vendors. And medium-voltage systems are growing faster, at 7.4% a year to 2030 in the Mordor numbers, which is the segment where engineering skill rather than catalogue stock wins the job.

What creates the demand

• Drives everywhere. Variable frequency drives are the largest source of harmonic current in industry. The VFD supplier VFDs.com notes that filtered or low-harmonic drives can add 20% to 300% to the drive price, depending on size and the level of THD required, which is why retrofitting a separate filter after the fact is a viable business.
• Data centres and EV charging. Both are dense non-linear loads and both connect to constrained networks. See our related guides on data centre power and battery energy storage systems.
• Tighter connection rules. G5/5 raised the assessed frequency range in the UK, and the Electrical Engineering Portal argues that harmonic studies are now effectively mandatory for connection approval of modern power systems.
• Premature equipment failure. Overheated transformers, tripped breakers, neutral conductor overload and failing capacitor banks create reactive demand that arrives with a budget attached.

Asia Pacific is described by the market reports as the largest and fastest-growing region, driven by China, India, Japan, South Korea and Australia. A US or UK start-up is not going to compete there, but the vendors you buy from are investing heavily in those markets, and capacity shifts can affect your lead times. Put a sentence on supply-chain exposure in the risks section.

Questions Buyers and Founders Ask

These are the questions that come up most often in searches around harmonic filters. Your plan's marketing section should answer each of them in the language your customer uses.

What does a harmonic filter actually do?

It reduces the harmonic currents that non-linear loads draw from the supply. A passive filter uses tuned inductors and capacitors to give harmonic currents an easier path than the grid. An active filter measures the load current, calculates the distortion and injects an equal and opposite current in real time. The effect is lower total harmonic distortion, cooler transformers and cables, and fewer nuisance trips.

Active or passive: which should a plant buy?

Passive filters and line reactors are cheaper and rugged, and they are the right answer when the load is steady, one drive or a small group of identical drives. Active filters are more expensive but handle a varying mix of loads and a range of harmonic orders. Mordor Intelligence's data show passive units hold the larger revenue share (59.1% in 2024) while active units grow faster. A survey-led firm earns its fee by saying which one the plant needs and refusing to sell the more expensive one when it does not.

When do you need a harmonic filter?

Three triggers: measured distortion above the IEEE 519 or G5/5 limit at the point of common coupling; equipment symptoms such as overheating transformers, nuisance breaker tripping, flicker or failing capacitor banks; and a utility connection offer that requires a harmonic compliance study. A rule of thumb used by many consultants is to investigate once non-linear load exceeds about 30 to 40% of the transformer's rating, although a formal study is the only reliable answer.

How much do harmonic filters cost?

The hardware range is wide because the products are different. Reactors and passive units start in the hundreds of dollars for small drives; 100A active units appear on marketplaces at $750 to $1,700 and branded 300A units range from $3,000 to over $15,000. Installed cost per amp commonly ends up between $25 and $90 once the survey, enclosure, protection and labour are included. Use quoted figures in your plan, not the marketplace minimum.

Can a harmonic filter save energy?

Sometimes, but it is a weaker selling point than reliability and compliance. Reducing harmonic current lowers I²R losses in cables and transformers, and the saving is typically small relative to the filter cost. Plants that buy on energy savings alone are unlikely to see a fast payback, so build the plan around avoided downtime, extended equipment life and avoided utility penalties.

Break-Even Calculator

Enter your own assumptions. The calculator uses the project-level economics from the worked example: hardware margin, installation margin, a survey fee and monthly fixed costs. All inputs are editable and nothing is stored.

The survey is assumed at 70% margin. With the default inputs, about 1.7 projects per month cover a $14,500 fixed-cost base. Most start-ups take 6 to 9 months to reach that rate.

Six Mistakes That Sink New Entrants

• Selling a filter before measuring. Sizing from a drive nameplate leads to over-specified units or, worse, an active filter overloaded within a month. The survey is the product. Log for at least seven days to catch weekly load cycles.
• Ignoring resonance with existing capacitor banks. A plant with power factor correction capacitors can resonate at a harmonic order and make distortion worse once a new filter is added. Any plan that does not mention detuning and resonance studies tells a lender that the founder has not yet had a failure.
• Buying stock before the pipeline exists. A 300A cabinet that sits in your unit for six months consumes $10,000 of cash that should pay wages.
• Under-pricing against marketplace listings. Cheap imported units have no local service, uncertain certification and no warranty claim route. Price against branded alternatives and show the buyer the cost of a failure.
• No professional indemnity cover. Advice on harmonics affects equipment worth many times your fee. Without cover, one contested report can end the company.
• One-vendor dependence. A dealer agreement can be cancelled with 60 or 90 days' notice. Hold a second supplier approved from day one, and say so in the plan.

Most industry guides stop at the product description. The number that actually drives this business is billable utilisation of the survey engineer and commissioning technician, so put that in the monthly forecast, not just the revenue headline.

Sample Business Plan Preview

Below is a condensed view of what a finished plan for a stocked-integrator business looks like. It is a fictional example built from the assumptions in this guide.

What's in the Template

Every Avvale business plan template is pre-structured for its industry. For harmonic filters, the sections are pre-loaded with the headings and prompts below.

• Executive Summary: the problem you solve (compliance, failure, connection offer), your model and your funding ask on one page
• Company Overview: legal structure, dealer agreements, technical certifications and insurance
• Industry Analysis: market size by filter type and voltage class, drivers and the standards that create demand
• Customer Analysis: plant engineers, facilities teams, contractors and utilities, with the trigger that makes each buy
• Competitor Analysis: global vendors, regional integrators and import marketplaces, with your positioning against each
• Marketing Plan: survey-led lead generation, contractor referrals, case studies and conference presence
• Operations Plan: survey process, commissioning checklist, stock policy, warranty and service contract delivery
• Management Team: technical credentials, key hires and an advisory engineer

The optional Financial Forecast add-on (included in our $300/£250 and $1,000/£800 packages) provides a 5-year Excel model with income statement, cash flow, balance sheet, break-even analysis, and startup capital requirements. For a model that mirrors the worked project above, the bespoke plan is the closest fit. You can also read examples of finished plans in our case studies, including Ventarus Engineering and Tejano Mechanical.

Frequently Asked Questions