The purpose of this study is to develop a method to determine spare transformer number and location. Using Markov Chain method, state transition model and steady state probability was used on each 500-kV substation in order to analyze the effect of spare number and location variation with the reliability changes. To give an actual result of the case study, calculation of spare transformer number and location on 500/150 kV transformers in Java Bali System was analyzed. The steady state probability results will vary depending on the number of spare transformer, these results can then be used to assess the spare transformer needed. The variation of spare transformer location can be used to analyze the best possible location of the spare in order to satisfy the reliability required. The methodology presented shows an integrated calculation for determining the spare transformer number and location.