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Power Factor Correction

The art of finding and fixing expensive power ineffeciencies.

What is Power Factor (PF) and Power Factor Correction (PFC)?

Most commercial and industrial premises have inductive loads such as electric motors, fluorescent lighting, ventilation, refrigeration, air conditioning etc. They distort the power supply making it inefficient.

PF is the measure of this inefficiency and is the difference between actual power (kW) and apparent power (kVA), which the equipment actually uses.

PFC works by improving the PF bringing it closer to 1 (unity), therefore reducing apparent power (kVA). The apparent power is the total requirement that a facility places upon the electric utility to deliver voltage and current, without regard to whether or not it will get used. Electric utilities typically charge customers a higher rate when the PF falls below a certain level — often 90%.

Low PF requires an increase in the generation and transmission capacity of the electric utility to handle their active power component caused by inductive loads. Therefore, to avoid the expensive installation of additional capacity, utilities usually charge a penalty for poor PF and include a demand charge component (based on kVA) in the bill to customers.

A low PF means a higher kVA and consequently a higher electricity bill for the same site load (kW). Therefore, demand savings can be achieved by improving a site’s PF.


What are Power Factor Correction Units?

PFC Units are capacitors which are added to your facility’s power distribution system and correct low PF. This is best accomplished via an automatic controller that switches capacitors, and sometimes reactors, on and off. The most basic applications use a fixed capacitor bank.

There has been an increase in demand for PFC units, which is why in May 2015, the GEM Energy team underwent exclusive training with NHP, an Australian entity established in 1968 and still manufacturing in Australia. NHP is arguably Australia’s leading manufacturer of Electrical Engineering products including PFC Units.

Like with everything we do at GEM Energy, we first learned and understood the ins and outs of these products, including the various pitfalls that are associated with incorrect installation or servicing, before we offered them to our customers.

Unfortunately, we have seen a large contingency of operators just buying and selling these units without any skill or experience.

Through our unique relationship with NHP as a direct partner, GEM Energy can offer absolute confidence and reassurance to our customers. Each PFC unit we supply is professionally engineered and custom-built by NHP in Melbourne.

What does a Power Factor Correction Unit do?

  • A PFC unit is connected between your incoming power supply and your main distribution panel comprising of capacitors.
  • It offsets the inductive currents by introducing equal and opposite capacitive currents, thereby neutralizing the inductive currents.
  • The capacitors reduce the total current and apparent power (kVA) drawn from the utility company.

Benefits Of PFC

  • Reduces electricity consumption and utility bills by reducing current drawn and energy used.
  • Reduces or eliminates penalties from utility companies for low PF.
  • Reduces your building’s carbon emissions by reducing installed energy demand.
  • Reduces wear and tear on motors, thereby reducing maintenance and extending lifetime.
  • Provides a degree of protection against voltage spikes and surges.
  • Improves machinery performance.


The outcome

  • PFC will reduce your electricity bill. GEM Energy has installed PFC units at a range of sites and, depending on the type of loads within the building, the savings average 5% – 25%.
  • In cases where the installation is sized to the maximum demand, this will usually give a payback of under two years.

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How changes in network billing may affect you

Businesses in some states will already be aware of PFC and know exactly what it means.

In July 2015, network operators like Energex & Ergon began shifting from KW demand billing to KVA and then KVAR billing.

When we draw power from the grid there are two types of power: Real Power and Reactive Power.

We consume Real Power when doing everyday normal activities like lighting, heating or cooling. Reactive Power is the energy stored in the load and then returned to the source – similar to the water hammer effect.

The total demand on the network is the sum of Real Power and Reactive Power, also known as Total Power.


If you are running heavy load appliances like high bay lights, pumps, motors, and welders, it is likely that you have a low PF as these appliances draw Reactive Power. Other transformer-based appliances like laptops and computers also have high Reactive Power draw. You can see the transformer in your laptop’s power cable.

Before July 2015, we were billed based on Real power (KW). Since then the networks have started transitioning to KVA billing which is effectively the Total Power taken from the grid. The networks will also start billing for excessive Reactive Power (KVAR) consumption.

Real power = KW

Reactive power = KVAR

Total power = KVA

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More information on Power Factor

Let us say our customers’ appliances are using 7KW of Real Power but draw 10KVA of Total Power from the grid. The property has a PF of 0.7. It is drawing 7KW of Real Power, which is what our customers will see on their power bill and 3KVAR of Reactive Power totaling 10KVA.

Let us have a look at this picture on the right.

The problem the energy companies have here is that they are putting out a lot of essentially free power. And more importantly, the local electricity grid infrastructure has to be capable of delivering the full 10KVA of power demand.

Our customers from the example now decide to install a GEM Energy PFC unit, and we can improve their PF to 0.9. The total power demand on the network will be reduced from 10KVA to 7.7KVA, with 7KW of Real Power and 0.7 of Reactive Power (KVAR).

Immediately we have reduced the total demand on the network infrastructure by 23% from one property. The network is now only giving away 0.7KVAR of Reactive Power as opposed to 3KVAR. This will inevitably lead to cheaper network costs which could potentially get passed on as savings.

How does this example look financially?

Under the old billing system, assuming a $20 per KW demand charge, our customers would receive a power bill of $140 ($20 x 7KW).

After switching to KVA billing our customers will be charged $200 (10KVA x $20). Furthermore, there will be a minimum charge of $4 per KVAR which in this example is $12 (3KVAR x $4).

As you can see, the difference is substantial ($140 as opposed to $212). Having a good PF on-site is imperative for achieving energy efficiency and therefore financial savings.

Let’s look at a real power bill.

We can see the Demand Charge under Network Charges within the red box. The threshold essentially means that this customer will get charged a minimum of 120kW per month, regardless of the amount of energy drawn from the grid. They are not charged for this under the Demand Charge line item of the power bill, but in the Service Availability Charge line item under Network Charges. It is essentially the first 120kW Demand Charge passed on as a fixed charge.

The remaining kW Demand over the threshold is 361.73kW, which is charged at $30.07 per KW. Within the red box at the bottom of the bill, you can see Actual Demand, 481.73kW. This is the total of the 120kW threshold and the 361.73kW over the threshold, which is what they are currently billed for.

Underneath this, still within the red box at the bottom of the bill, you can see Actual Demand, 554.43 kVA. We can work out the customer’s PF by taking the 481.73 KW Actual Demand and dividing it by the Actual kVA Demand of 554.43 kVA. This customer has a PF of 0.86, which is quite reasonable.

So what does this mean for the customer’s power costs?

Instead of receiving a power bill for the 120kW threshold plus the 361.73 kW Demand, they will receive a bill for the 120kW threshold plus 434.43 kVA, which is the balance of the 554.43 kVA Actual Demand less the 120kW threshold. This translates to a difference of 72 kVA and at just over $30 per kVA it will increase their bill by $2,181 per month.

If we were to correct the PF to 0.95 (we never go more than this for technical reasons), then the customer would receive a bill for 380 kVA instead of 434 kVA which represents a saving of 54 kVA or $1,620 per month.

Power Factor Table

Power Factor Calculation

Power Factor = True Electric Power (kW) ÷ Apparent Power (kVA)


  • Desired power factor (PF) value at a facility:
    50kW ÷ 52kVA = 0.96 (a good power factor of 96%)
  • Poor power factor (PF) value at a facility:
    50kW ÷ 63kVA = 0.79 (a poor power factor of 79%)

kVAr/kW factor from Table below = 0.47

Look up on 0.79 under the appropriate row and 0.95 under the appropriate column: the intersection should be 0.47.

(Image Source: NSW Farm Energy Innovation Program, 2013)

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Maintenance of PFC units

Under normal conditions, PFC units or capacitors should operate trouble-free for many years. However, conditions such as harmonic currents, high ambient temperatures, and poor ventilation can cause premature failures in power factor correction capacitors and related circuitry. These failures can lead to substantial increases in energy expenses and — in extreme cases — create the potential for fires or explosion (Photo 1).

Therefore, it is critical to inspect power factor correction capacitors on a regular basis to ensure they are working properly. In fact, most manufacturers recommend that preventive maintenance is performed twice a year.

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