Why improve the power factor?

Reduction in the cost of electricity

An improvement of the power factor of an installation presents several technical and economic advantages, notably in the reduction of electricity bills

Good management in the consumption of reactive energy brings economic advantages.
These notes are based on an actual tariff structure commonly applied in Europe, designed to encourage consumers to minimize their consumption of reactive energy.
The installation of power-factor correction capacitors on installations permits the consumer to reduce his electricity bill by maintaining the level of reactive-power consumption below a value contractually agreed with the power supply authority.
In this particular tariff, reactive energy is billed according to the tan φ criterion.
As previously noted:
[math]\displaystyle{ tan \phi=\frac{Q(kvarh)}{P(kWh)} }[/math]
The power supply authority delivers reactive energy for free:

• If the reactive energy represents less than 40% of the active energy (tan φ < 0.4) for a maximum period of 16 hours each day (from 06-00 h to 22-00 h) during the most-heavily loaded period (often in winter)
• Without limitation during light-load periods in winter, and in spring and summer.

During the periods of limitation, reactive energy consumption exceeding 40% of the active energy (i.e. tan φ > 0.4) is billed monthly at the current rates. Thus, the quantity of reactive energy billed in these periods will be:
kvarh (to be billed) = kWh (tan φ - 0.4) where:
  - kWh is the active energy consumed during the periods of limitation
  - kWh tan φ is the total reactive energy during a period of limitation
  - 0.4 kWh is the amount of reactive energy delivered free during a period of limitation
tan φ = 0.4 corresponds to a power factor of 0.93 so that, if steps are taken to ensure that during the limitation periods the power factor never falls below 0.93, the consumer will have nothing to pay for the reactive power consumed.
Against the financial advantages of reduced billing, the consumer must balance the cost of purchasing, installing and maintaining the power factor improvement capacitors and controlling switchgear, automatic control equipment (where stepped levels of compensation are required) together with the additional kWh consumed by the dielectric losses of the capacitors, etc. It may be found that it is more economic to provide partial compensation only, and that paying for some of the reactive energy consumed is less expensive than providing 100% compensation.
The question of power-factor correction is a matter of optimization, except in very simple cases.

Technical/economic optimization

Power factor improvement allows the use of smaller transformers, switchgear and cables, etc. as well as reducing power losses and voltage drop in an installation

A high power factor allows the optimization of the components of an installation. Overating of certain equipment can be avoided, but to achieve the best results, the correction should be effected as close to the individual inductive items as possible.

Reduction of cable size

Figure L7 shows the required increase in the size of cables as the power factor is reduced from unity to 0.4, for the same active power transmitted.

Multiplying factor for the cross-sectional area of the cable core(s)	1	1.25	1.67	2.5
cos φ	1	0.8	0.6	0.4

Fig. L7: Multiplying factor for cable size as a function of cos φ

Reduction of losses (P, kW) in cables

Losses in cables are proportional to the current squared, and are measured by the kWh meter of the installation. Reduction of the total current in a conductor by 10% for example, will reduce the losses by almost 20%.

Reduction of voltage drop

Power factor correction capacitors reduce or even cancel completely the (inductive) reactive current in upstream conductors, thereby reducing or eliminating voltage drops.

Note: Over compensation will produce a voltage rise at the capacitor level.

Increase in available power

By improving the power factor of a load supplied from a transformer, the current through the transformer will be reduced, thereby allowing more load to be added. In practice, it may be less expensive to improve the power factor⁽¹⁾ , than to replace the transformer by a larger unit.