Top 5 Reasons to Improve your Power Factor

Top 5 Reasons to Improve your Power Factor

You may be aware that your electricity bill is determined by your demand (KW) and energy consumed (kWh). While these two components affect your bill the most, there is another lesser known factor that can have a significant impact on how much your bill is each month. Since it is less well-known and its impact not as obvious, it often goes unnoticed. If you haven’t figured it out yet (hint hint…check out the title), the factor I am referring to is called power factor.

Figure 1: Pole mounted capacitor bank to improve power factor

What is power factor? We will save the details for a future blog post, but for the purposes of this blog, just think of power factor as a measure of how effectively you are using electricity. A high power factor (90-100%) benefits both the customer and utility company, while a low power factor (below 90%) indicates poor utilization of electrical power and is costly for your utility company. If you have a poor power factor, a quick and easy fix is to install capacitors (see Figure 1), which can be sized to improve your power factor to the desired amount.

Now back to the bill, an improved power factor can help you save money on your monthly electricity bill. Not only that, a higher power factor will increase load carrying capabilities in your existing circuits and will reduce overall power system losses. The below list shows the top five reasons for improving your power factor, ranked in descending order of the potential financial impact on your utility bill.

1. Avoid Power Factor Penalties

Many utility companies assess a power factor penalty for lower power factor, while some also provide an incentive for high power factor. This penalty can be listed clearly as a line item on your bill or it can be calculated into your billing demand amount. An improved power factor will eliminate this penalty from your bill. 

2. Reduced Demand Charges

If your demand is being measured in KVA (see Figure 2), then increasing your power factor will lower your KVA amount, thereby reducing your demand charges. While your demand may not be measured solely in KVA, it can still impact your demand charges. It is common for utility companies to 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 your power factor is low, the percentage of the measured KVA will be significantly greater than the KW demand. Once again, increasing your power factor on this type of rate schedule will lower the KVA amount, which could help you save money on your demand charges.

Figure 2: Review your rate schedule and be aware of the per kVA charges.

3. Increased Load Carrying Capabilities in Existing Circuits

Improving your power factor will reduce the current flow in your existing circuits. This reduction may allow your existing circuits to carry new loads, saving the cost of upgrading the distribution network when extra capacity is required for additional machinery or equipment. In times of expansion, this could save your company thousands of dollars in unnecessary electrical upgrade costs.

4. 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.

5. Reduced Power System Losses

Although the financial return from conductor loss reduction alone is not enough 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.

If you think your company could benefit from an improved power factor, or if you are not sure but want us to review, please contact us to schedule a time to discuss any of your energy efficiency needs.