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Hmmm... You can definitely drop down the voltage, and ideal capacitors don't dissipate any power. So it seems, at first glance, that you could use a capacitor divider as a lossless voltage step-down device for AC.

So you could use a cheaper variable cap divider as a replacement for a Variac? And it would be continuously variable, too, whereas the Variac is only variable in discrete windings.

There has to be something wrong with this. What am I not thinking of?

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I don't think you've considered the output impedance of such a divider.

Variable capacitors typically have relatively small capacitance which means that, at AC mains frequency, the output impedance will be enormous compared to the variac, i.e., your variable capacitor divider will only work with (very) high-impedance loads.

In other words, you will not able to deliver significant power this way.

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