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This paper presents a new method of improving the energy efficiency of a variable speed drive (VSD) for induction motors. The efficiency of induction motor at low load operation and at rated flux is very low compared when operating at full load due to excessively increase in iron losses. To improve this efficiency, it is essential to obtain the flux level that minimizes the total motor losses. In this paper, the proposed controller is designed to generate both the voltage and frequency reference signals simultaneously. The proposed controller was simulated for variable speed compressor application. The results obtained clearly show that the efficiency at low speed is significantly increased. Besides that the speed of the motor can be maintained. The simulation results are also verified by experiment.