How Power Factor Correction will reduce your commercial building’s energy costs.

Large electrical users face peak demand charges from power companies, effective July 2016.

Facility and Property Managers need to be aware of the new changes associated with electricity and how it will impact electricity costs. Implementing correct Power Factor within a building will be the most effective and economical way of saving costs.

Large electrical users will be affected by the new billing structure from power companies, effective July 2016. From this date, power companies will be charging all large users based on peak demand. Power Factor Correction will ultimately reduce the demand and save on electricity costs.

What is Power Factor Correction?

Power Factor Correction reduces the electrical current drawn from a power company for INDUCTIVE loads. It does this by storing power and providing it to INDUCTIVE loads when required. Energy is stored in capacitor banks, otherwise known as Power Factor Correction Units. Storing power and providing it to INDUCTIVE loads when it’s required will in turn draw less energy from a power company, for the same amount of power that would be required for equipment to work.

Power Factor Correction is a way of raising Power Factor that is less than 1, and bringing it closer to 1, to be more efficient. The closer it gets to 1, the more efficient it’s going to be.

Prolux Electrical Contractors provide Power Factor Correction for Facility Managers of large commercial and industrial factories and corporate office buildings alike, wanting to reduce their energy demand costs. This form of energy efficiency is particularly suitable where large starting currents are required and the Power Factor is brought to an undesirable level.

What is Power Factor? How does Power Factor Correction work?

Power Factor is simply the measure of the efficiency of the power being used. Power Factor is the ratio between the kW and the kVA drawn by an electrical load where the kW is the actual load power and the kVA is the apparent load power.

A Power Factor of 1.0 means that 100% of the power supply is being used efficiently; zero angle, so kW (actual power) = kVA (alleged power). A power factor of 0.5 means that you’re paying more for every kWh used, as the power is being used inefficiently and wasted; the power being used doesn’t match the needs of the load correctly.

In order to fully understand Power Factor and the relevance of Power Factor Correction you must grasp the concept behind it, utilising electrical loads.

A site would typically be made up of two different types of electrical loads: RESISTIVE loads and INDUCTIVE loads.

Halogen / Incandescent Lights         T8 Fluorescent Lights
Heating Elements – Hot Water           Refrigeration Units
Heating Coils – Kitchen Appliances           Air Conditioning Units
Computers & Televisions           Pumps

For RESISTIVE loads, the energy (or electricity) supplied by a power company is exactly the same as the electricity used.

For INDUCTIVE loads, some energy is used up to create a magnetic field, which is a waste of energy. This waste of energy is not used by the load, but is required in order for it to operate.

Power Factor is measured between 0 and 1, with 0 being the least economical, and 1 being the most economical.

Power Factor is the ratio between the electricity required to operate the equipment and the electricity supplied by a power company.”


Power Factor Correction

Think of it like this, if you purchase a bottle of water, you pay for the whole bottle, including the section at the top, which is full of air. In this instance, the bottle is only 99% full. If this was equated to Power Factor, your Power Factor would be 99%, or as we call it, ‘a Power Factor of 0.99.’ If you purchased a bottle with no air in it at all, it would be 100% full, therefore the Power Factor would be 1 – perfect Power Factor.

If you purchase a bag of chips, you pay for the whole bag, even if it’s only three quarters (3/4 or 75%) full. If this was equated to Power Factor, your Power Factor would be 75%, or as we call it ‘a Power Factor of 0.75.’

The air in the bag is referred to as REACTIVE Power, the chips are referred to as REAL Power and the bag of chips before it’s opened is referred to as APPARENT Power.


With an understanding of the difference between REACTIVE, REAL and APPARENT power you’ll be able to comprehend how implementing Power Factor will cost you less.

RESISTIVE loads are like the bottle of water. INDUCTIVE loads are like the bag of chips.

Similarly, if you use a motor which is 10 horsepower (hp) and you run it with a Power Factor of 0.75, the energy that a power company has to supply to you in order for the motor to run is 13.3 hp (10 hp + 75% of 10 hp which is 3.3 hp = 13.3 hp). There is a 3.3 hp loss in creating a magnetic field in the motor. Remembering a motor is an INDUCTIVE load, so all INDUCTIVE loads will have this same issue.

If the Power Factor was 1 (perfect), then the 10 hp motor would only need to draw 10 hp from a power company. If the Power Factor was 0.5, then the 10 hp motor would need to draw 15 hp from a power company.

When to use Power Factor Correction

One very important aspect of improving quality of supply is the control of Power Factor. Low Power Factor means poor electrical efficiency. The lower the Power Factor, the higher the apparent power drawn from the distribution network.

By installing suitably sized switched capacitors into the power distribution circuit, the Power Factor is improved and the value becomes closer to 1.0, therefore minimising wasted energy, improving efficiency, liberating more kW from the available supply and saving you money.

The purchase cost of the installation is usually repaid in less than a year’s electricity savings.

How Power Correction affects your electricity bill

From July 2016, kVA will be used to measure electricity demand, instead of kW.

kVA encourages users to manage their peak kVA demand, improve electrical efficiency and drive down overall electricity costs. Reducing maximum kVA demand is the most effective way of reducing an electricity bill. The most economical way this can be reduced is by improving Power Factor.

An electricity company supplies you with VOLTS x AMPS, they have to supply you with extra to make up for the loss caused by a poor power factor. When the power factor falls below a set figure, the electricity supply companies charge a premium on the kW being consumed, or, charge for the whole supply as kVA by adding reactive power charges (kVar) to your bill.

The better the Power Factor, the less energy you are going to require from a power company. You are billed for your usage of power as well as the demand. Demand is the amount of power that a power company supplies to you.

There are generally two major components on an electricity bill that your charge is calculated on. DEMAND and USAGE.

The higher the DEMAND, the more you will be billed and the more the USAGE the more you will be billed.

Power Factor Correction will lower the DEMAND, and in turn this will then lower the USAGE.

Reflects the amount of power required on site, for all equipment to work.

Reflects the amount of power actually used by all of the equipment.


If we only have 1 x 10 hp (7.4 kw) motor being billed and the Power Factor is 0.75 (as per the example shown previously), we know that 13.3 hp (9.8 kVA) is required, therefore the demand charge will be based on 9.8 kVA.

If we only have 1 x 10 hp (7.4 kw) motor being billed with Power Factor of 1 (corrected by a Power Factor Correction Unit), the demand charge will be based on 7.4 kVA.

Power Factor Correction Solutions:

  • Voltage Improvement
  • Filter Reactors
  • Capacitor Ratings
  • Power Loss Reduction
  • Power Factor Correction Capacitors

Maintenance of Capacitor Banks

It is important that regular inspections are carried out to help prevent an early failure and pick-up any faults. A routine inspection should ensure:

  • fuses are not damaged
  • contactors are operational
  • discharge resistors are operational
  • tightness of all electrical connections
  • removal of dust and deposit build-up
  • filters are checked and cleaned
  • tong test of capacitor current

How you’ll save money with a Power Factor Correction Unit

For a 25 storey building that’s 15-20 years old, a Power Factor of 0.65 would be expected.
Based on this, supply and installation of a Power Factor Correction Unit would cost circa $14,000 and generate savings of $450-$500 per month (refer to Preliminary Proposal).



Power Factor Correction is an investment that helps to improve your profit performance. Victoria has existing penalty structures in place for customers that operate on a poor Power Factor.

If you’d like a complimentary Preliminary Proposal with your ROI for the buildings you manage, simply provide us with the interval data for the past 12 months (available from your current electrical retailer).

Call Prolux Electrical Contractors on 1800 800 880 for more information.