Power factor is the ratio of real power, measured in kilowatts (kW), to apparent power, measured in kilovolt-amperes (kVA). A power factor of 1.0 means all the current a site draws does useful work. A power factor of 0.8 means the site must draw 25% more current than the useful work alone requires. For most homes this has little effect on the bill, but many businesses pay network charges based on kVA demand, so a low power factor can raise costs, heat cables and use up supply capacity needed for new equipment.

The beer-glass analogy

A glass of beer is the classic way to picture the three kinds of power:

• The beer is real power (kW). It is the part that does useful work: turning motors, heating elements, running lights and computers.
• The foam is reactive power (kVAr). It takes up space in the glass but does no useful work on its own.
• The whole glass is apparent power (kVA). It is what the supply, cables and transformer must be sized to carry.

A glass with a thick head holds less beer for the same size, just as a site with poor power factor delivers less useful work for the same current. Where charges are based on kVA, the business is effectively paying for the size of the glass, foam included.

The power triangle

Real and reactive power sit at right angles to each other, so apparent power is the hypotenuse of a triangle: kVA² = kW² + kVAr². Power factor is kW divided by kVA. The table shows what happens for a steady 100 kW load as power factor falls:

The same useful work at 0.7 power factor needs around 43% more apparent power than at 1.0. Current rises by the same proportion, and resistive losses in cables rise with the square of current, so poor power factor also wastes energy as heat.

Why reactive power exists

In an AC supply, voltage and current alternate 50 times a second. In a purely resistive load, such as a kettle element, they rise and fall together. Many loads do not behave that way.

Inductive loads need a magnetic field to operate. Induction motors, compressors, pumps, fans, transformers, welders and older fluorescent lighting all build up a magnetic field and then release it, every cycle. That energy sloshes back and forth between the load and the supply without being consumed, and the current peaks slightly after the voltage. This lag is called a lagging power factor, and it is the most common problem at commercial and industrial sites.

Capacitive loads do the opposite, with current leading voltage. Long cable runs, some electronic equipment and over-sized correction equipment can push a site towards a leading power factor.

There is a second contributor. Electronic loads such as variable speed drives, LED drivers, IT equipment and chargers draw current in short pulses, creating harmonics. Harmonic distortion also lowers the "true" power factor, and it cannot be fixed with simple capacitors alone.

How power factor shows up on a business bill

Business network tariffs often include a demand charge based on the highest kVA recorded in a half-hour interval during the billing period. Interval meters record the data needed to calculate it; smart meters and solar explains how those readings are captured. Because kVA includes reactive power, two sites with identical kW usage can pay different demand charges if their power factor differs.

Solar adds a twist. A rooftop system reduces the real power a site draws from the grid, but conventional operation leaves the reactive demand unchanged. At the meter, the ratio of kW to kVA can therefore fall during sunny hours, so the measured power factor appears to worsen even though nothing inside the building has changed. Modern grid-connected inverters can be configured to supply or absorb reactive power within network rules, which is one reason inverter settings deserve attention on commercial sites.

Power factor and spare supply capacity

A site's connection, main switchboard and transformer are rated in amps or kVA, not kW. That makes power factor a capacity question as well as a cost question. Consider a site with a supply rated for about 250 kVA and a peak load of 200 kW:

• At a power factor of 0.95, the peak uses about 211 kVA, leaving roughly 39 kVA of headroom.
• At a power factor of 0.80, the same peak uses 250 kVA, leaving no headroom at all.

In the second case, adding EV chargers, a new compressor or a battery charging from the grid could appear to require a supply upgrade, when improving power factor might free enough capacity. It is not a universal fix, but it is worth checking before paying for larger cables or a new transformer.

Correction methods

Correction supplies reactive power locally so it does not have to travel from the grid. The main approaches are:

1. Fixed capacitors at individual large motors, sized to that motor's reactive demand and switched with it.
2. Automatic capacitor banks at the main switchboard, where a controller switches capacitor steps in and out as the load changes.
3. Detuned capacitor banks, which add reactors to avoid resonance with harmonics, a common requirement at sites with many drives.
4. Active correction, using power electronics that inject reactive current and can also filter harmonics, responding within fractions of a cycle.

Good correction starts with power quality logging over a representative period, not a guess from one bill. Over-correcting pushes the site into a leading power factor, and ignoring harmonics can overload capacitors. Many sites aim for a power factor of around 0.95 or better, but the right target depends on the tariff and network requirements. Capacitor banks store charge even when switched off, so design, installation and maintenance must be carried out by licensed electricians.

Next steps

If your business pays kVA demand charges or runs many motors, measuring power factor is a practical first step before investing in solar, batteries or correction equipment. To discuss your site, request a free assessment from Blue Energy Solar. The energy market lists a Power Quality Analysis from $1,990 for 7-day logging and a report, and Power-Factor Correction from $9,900 per site installed; prices are indicative and confirmed after a site assessment. Unfamiliar terms are defined in the solar technology glossary.

Frequently asked questions

Does power factor affect a household electricity bill?

Usually not. Residential customers in NSW are generally billed on energy in kWh, sometimes with time-of-use or demand components measured in kW, rather than kVA. Household appliances with motors do have a power factor below 1.0, but the effect on the home's bill is negligible. Power factor mainly matters for businesses on kVA-based network tariffs and for sites with large motor loads.

Can a solar inverter or battery correct power factor?

Many modern inverters and battery power conversion systems can supply or absorb reactive power, and networks may require certain voltage-support settings. Whether they can meaningfully correct a site's power factor depends on their rating, available capacity when also exporting real power, network connection rules and configuration. For sites with large motor loads, a purpose-designed correction system is usually still needed.

How can I estimate my site's power factor from a bill?

Some business bills show maximum demand in both kW and kVA for the same period. Dividing the kW figure by the kVA figure gives an approximate power factor at that peak. If only kVA appears, the retailer or network can often supply interval data including kW and kVAr readings. A single figure is only a snapshot, so logging over days or weeks gives a far more reliable picture.