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November 21, 2019



Reducing Electric Utility Bills with Power Factor Correction

The power factor of an electric load can be defined as the ratio of real power to apparent power.

  • Real power is, as implied by its name, the actual power the load is consuming. It is represented by the letter P and measured in kilowatts (kW).
  • Reactive power is a type of power drawn by inductive or capacitive loads - it flows back and forth between the load and the voltage supply, without being consumed. It is represented by the letter Q and its measurement unit is kilovolt-ampere reactive (kVAR).
  • Real and reactive power are out of phase by 90°, and their vector sum is apparent power. It is represented by the letter S and its measurement unit is kilovolt-ampere (kVA).

The following diagram illustrates the concept of power factor:

For instance, if we have 40 kW of real power and 15 kVAR or reactive power, the apparent power would be:


In this scenario, the power factor would be:

  • PF = 40 kW / 42.72 kVA = 0.9363 = 93.63%

If the load is predominantly inductive, the power factor is considered lagging. On the other hand, capacitive loads have a leading power factor.

Why is POWER FACTOR CORRECTION important for electric utility bills?

The main contributor to a low power factor is normally motor loads, which may include:

  • Heating and cooling equipment
  • Pumps and fans
  • Industrial machinery

In residential buildings, these types of loads are minimal, so residential electric rates typically ignore the power factor. However, this is not the case for commercial and industrial consumers. Normally, the minimum power factor is defined by the electric utility company.

  • A minimum power factor may be required, for example, 90%.
  • Alternatively, the reactive power (kVAR) may be capped in the function of real power (kW). For example, an electric company might bill consumers whose reactive power exceeds 40% or real power (this would correspond to power factors below 92.85%).

In either billing approach, the fee paid by the consumer increases as the power factor decreases - the bill may rise considerably in the case of large industrial consumers.

Improving the power factor using NRG Savers custom-built capacitor banks is extremely valuable to the consumer. It's perhaps the most efficient way to clean up your power in your facility and increase your voltage while decreasing the harmonics through your facility.

How is power factor corrected?

The basic principle of power factor correction is to make inductive and capacitive loads balance each other. For instance, a motor (resistive-inductive load) drawing 10 kVAR of reactive power and a capacitor (capacitive load) rated at 8 kVAR will only draw a net reactive power of 2 kVAR. This is the reason why electric utility customers install capacitor banks to correct the power factor. The adequate kVAR rating of the capacitor bank will depend on the load and the billing method.

Power Factor Correction: Minimum Value Requirement

In this scenario, it is simply a matter of calculating the actual power factor, and the kVAR difference that would be required to drive it above the minimum. For instance, consider the following inductive load:

  • P = 100 kW
  • Q = 70 kVAR
  • S = 122 kVA
  • PF = 100kW / 122 kVA = 0.8192 (81.92%)

If a minimum of 90% was required, apparent power would need to be:

  • S = P / 0.90 = 100 kW / 0.90 = 111.11 kVA
  • Q = 48.43 kVAR

This means that the capacitor bank must have a minimum capacity of:

  • Q (capacitor) = 70 kVAR - 48.43 kVAR = 21.57 kVAR

Power Factor Correction: Percentage of Real Power Cap

The calculation is much simpler in this scenario. Consider the same example and a reactive power cap of 40% of real power.

  • Q (max) = 100 kW x 40% = 40 kVAR
  • Q (actual) = 70 kVAR
  • Q (capacitor) = 70 kVAR - 40 kVAR = 30 kVAR

Capacitors are normally oversized by a slight margin, in order to exceed the minimum requirements of electric utility companies.


Strictly speaking, power factor correction is not an energy-saving measure (real power remains the same). However, it is a cash-saving measure. Given that one of the main purposes of energy efficiency is to save money, power factor correction is typically carried out along with energy efficiency retrofits. There are slight energy savings through the reduction of line currents, but the effect tends to be negligible compared with eliminating the power factor fee from the electric bill.

Power factor is likely to be an issue in buildings with considerable motor loads, especially very dated buildings where motors may be old models with a low power factor.




Lightning Strike Protection

Another great benefit to using NRG Savers custom-built capacitor banks is that it further protects your facility and equipment from horrific lightning strike damage. 



Homeowners insurance losses

The number of homeowners insurance claims from lightning strikes in the United States fell in 2018 for the third consecutive year, but the average cost that insurers paid on those claims has soared since 2016, according to the Insurance Information Institute. About $909 million in lightning claims was paid out in 2018 to almost 78,000 policyholders. The value of claims resulting from lightning rose 6.0 percent from 2016 to 2018, but the average cost per claim rose 21.2 percent. “With increased labor and construction costs as well as consumer appetite for smart home products, it’s not surprising that lightning-related homeowners insurance claims costs have risen,” said James Lynch, FCAS MAAA, chief actuary at the I.I.I.




Avoid Power Factor Penalties

Most industrial processing facilities use a large number of induction motors to drive their pumps, conveyors, and other machinery in the plant. These induction motors cause the power factor to be inherently low for most industrial facilities. Many electric utility companies assess a power factor penalty for lower power factor (usually below 0.80 or 0.85). Some also incentive high power factors (above 0.95, for example). By adding power factor correction, you can eliminate the power factor penalty from your bill.

Reduced Demand Charges

Many electric utility companies charge for maximum metered demand based on either the highest registered demand in kilowatts (KW meter), or a percentage of the highest registered demand in KVA (KVA meter), whichever is greater. If the power factor is low, the percentage of the measured KVA will be significantly greater than the KW demand. Improving the power factor through power factor correction will, therefore, lower the demand charge, helping to reduce your electricity bill.

Increased Load Carrying Capabilities In Existing Circuits

Loads drawing reactive power also demand reactive current. Installing power factor correction capacitors at the end of existing circuits near the inductive loads reduces the current carried by each circuit. The reduction in current flow resulting from improved power factor may allow the circuit to carry new loads, saving the cost of upgrading the distribution network when extra capacity is required for additional machinery or equipment, saving your company thousands of dollars in unnecessary upgrade costs. In addition, the reduced current flow reduces resistive losses in the circuit.

Improved Voltage

A lower power factor causes a higher current flow for a given load. As the line current increases, the voltage drop in the conductor increases, which may result in a lower voltage at the equipment. With an improved power factor, the voltage drop in the conductor is reduced, improving the voltage at the equipment.

Reduced Power System Losses

Although the financial return from conductor loss reduction alone is not sufficient to justify the installation of capacitors, it is sometimes an attractive additional benefit; especially in older plants with long feeders or in field pumping operations.





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