Power Factor Explained: What It Is and How to Correct It
Somewhere on a commercial or industrial electric bill sits a line most homeowners never see: a low-power-factor surcharge, a reactive-demand charge, or a penalty multiplier applied because the meter measured more current flowing through the service than the facility's real work actually required. The motors didn't get less efficient and the equipment didn't do any more work: the utility simply had to build its wires, transformers and generation to carry a bigger current than the kilowatt figure on the bill would suggest, and part of that extra cost gets passed back to the customer.
This page is about the fix rather than the definition: how a capacitor bank cancels that extra current, what a utility surcharge is actually measuring, and how to size correction capacitance for a real load, worked through for an 80 kW facility moving from power factor 0.72 to 0.95.
How power-factor correction actually works
An inductive load such as a motor draws current with two components riding on the same wire. One is in phase with the voltage and does real work: it turns the shaft, and it's what shows up as the kW figure on a spec sheet. The other lags 90° behind the voltage, sustains the motor's magnetic field, and returns to the source every half-cycle without ever doing net work on the load. A facility's wiring, transformers and the utility's own feeder all have to carry the full vector sum of both components, the apparent current, even though only the in-phase piece is billed as real energy delivered.
A capacitor does the opposite: it draws current that leads the voltage by roughly 90°, exactly out of step with an inductor's lagging current. Wiring a capacitor bank in parallel with the motor lets the capacitor supply the motor's magnetizing current locally, cycle by cycle, instead of that current having to travel all the way back through the facility's service and the utility's feeder. Where the capacitor's leading current and the motor's lagging current meet, they cancel, partially or, at the right sizing, almost completely, so the vector sum flowing upstream of that point shrinks.
Nothing about the motor's real work changes in this process. The shaft turns at the same speed under the same load, and the kW figure on the utility bill's energy line is unchanged, because a capacitor doesn't do work; it only sources and sinks reactive current on a cycle shifted 180° from what the inductor needs. What changes is how far that reactive current has to travel: after correction, most of it is a short loop between the motor and the capacitor bank rather than a long round trip through the utility's infrastructure, which is the entire reason the current the utility has to supply, and often bill against, goes down.
Where the bank sits changes what it corrects. A single large bank installed at the main switchboard corrects the facility's overall power factor as the utility meter sees it, which is usually enough to clear a billing threshold, but every motor branch circuit upstream of that point still carries the original, uncorrected current. Correcting closer to individual large motors, sometimes called local or distributed correction, also relieves that branch wiring, at the cost of more capacitor sections to install and track. Many real installations aren't sized as one fixed capacitor value either: a bank is often built from several switched steps that engage or disengage automatically as the facility's load rises and falls through the day, so the correction stays close to the target power factor rather than drifting into over- or under-correction at light load.
Size a correction capacitor bank
The relationship above reduces to one identity: the reactive power at any power factor is the real power times tan(cos⁻¹PF), so the capacitance needed to move between two power factors is just the difference between those two reactive-power figures. Enter a load in kilowatts with its existing and target power factor below to run that same calculation, a useful first-pass estimate before an actual capacitor bank is priced and specified against the facility's real load profile.
Correction capacitance needed
50.81kVAR
A kVAR figure alone doesn't finish the job of buying a capacitor bank: a real quote also needs the system voltage and phase configuration, since a bank has to be rated for the circuit it's connected to, and whether it will be built as one fixed value or several switched steps sized to track the facility's load through the day. Treat the number above as the sizing target a capacitor-bank supplier or electrical contractor works from, not a part number to order directly.
What a power-factor surcharge looks like on a bill
Utilities that meter commercial and industrial customers usually have some mechanism for recovering the cost of the extra apparent current a low power factor forces them to carry, and it typically takes one of two general shapes. The first bills demand against kVA rather than kW: since kVA = kW / PF, a facility running at PF 0.72 gets billed as if it pulled noticeably more capacity than an identical facility doing the same real work at PF 0.95, even though both facilities used the same number of kilowatt-hours. The second applies a direct penalty, a percentage added to the demand or energy charge whenever the average power factor over a billing period falls below a stated threshold, commonly somewhere around 0.90 to 0.95 on the rate schedules that use one.
Both mechanisms point at the same underlying cost: apparent current, not real power, is what actually loads a utility's wires and transformers. Exactly how it's billed varies a great deal by utility, jurisdiction and rate class, and some utilities don't apply a separate power-factor charge at all, folding the cost into a kVA-based demand rate that applies regardless. A facility's own tariff sheet or account representative is the only authoritative source for its specific threshold and penalty structure. The table alongside this is illustrative of the general shape, not a stand-in for any one utility's actual rate schedule.
Where a threshold applies, it's usually computed from metered totals over a full billing period rather than a single instantaneous reading, commonly the ratio between the real energy delivered (kWh) and the total apparent energy implied by kWh and metered reactive energy (kVARh) together. That averaging matters for correction planning: a facility that runs a lightly loaded motor overnight can see its billing-period power factor pulled down by hours where reactive current is high relative to real power, even if the plant's power factor looks fine during a normal production shift.
Illustrative surcharge structures
Two common shapes seen on commercial/industrial rate schedules, examples only, not any specific utility's tariff.
| Billing mechanism | How it behaves |
|---|---|
| kVA-based demand | Peak demand is billed in kVA year-round, so a lower power factor directly raises the billed demand figure with no separate threshold involved. |
| Threshold penalty | A percentage is added to the bill for each point the billing-period average PF sits below a stated threshold, often near 0.90 to 0.95. |
| No PF charge | Some rate schedules, especially smaller commercial classes, don't meter or bill power factor separately at all. |
Worked example: an 80 kW facility at PF 0.72
A distribution facility runs a mix of conveyor and compressor motors totaling 80 kW of real power, and its utility bill shows an average power factor of 0.72, below the 0.90 threshold its rate schedule uses to trigger a penalty. The facility's electrical contractor is asked to size a capacitor bank that clears the threshold with margin, targeting power factor 0.95.
The same 80 kW figure also shows what correction does to the apparent power the utility has to supply: at PF 0.72 the facility's 80 kW of real work requires 111.11 kVA of apparent power, but the identical 80 kW at PF 0.95 only requires 84.21 kVA: a reduction of nearly 27 kVA in the capacity the utility has to carry and, on a kVA-based demand rate, bill against.
Targeting 0.95 rather than stopping right at the 0.90 threshold also builds in some margin: since the billing-period figure is an average, a bank sized to just clear the threshold on paper can still see the facility dip below it during hours when motors run lightly loaded, while a bank sized to 0.95 has room to absorb that swing without tripping the penalty.
Sizing the capacitor bank
80 kW load, existing power factor 0.72, target power factor 0.95.
- 1
Start from the correction formula
kVAR = kW × [tan(cos⁻¹PF₁) − tan(cos⁻¹PF₂)]
- 2
Convert each power factor to its reactive ratio
tan(cos⁻¹0.72) = 0.9639, tan(cos⁻¹0.95) = 0.3287
- 3
Subtract and multiply by the real load
kVAR = 80 × (0.9639 − 0.3287) = 50.81 kVAR
- 4
Compare the apparent power before and after
80/0.72 = 111.11 kVA → 80/0.95 = 84.21 kVA
This is general reference arithmetic. A real capacitor bank is specified against the facility's actual load profile, not a single billing-period average, and installed and commissioned by a licensed electrical contractor.
Correction outcomes for an 80 kW load, target PF 0.95
The lower the existing power factor, the more kVAR of correction capacitance it takes to reach the same 0.95 target, and the more apparent power (kVA) the correction removes from what the utility has to supply.
| Existing PF | Correction needed | kVA reduction |
|---|---|---|
| 0.65 | 67.24 kVAR | 38.87 kVA |
| 0.70 | 55.32 kVAR | 30.08 kVA |
| 0.72 | 50.81 kVAR | 26.90 kVA |
| 0.80 | 33.71 kVAR | 15.79 kVA |
| 0.85 | 23.28 kVAR | 9.91 kVA |
| 0.90 | 12.45 kVAR | 4.68 kVA |
Reference estimates for an 80 kW load only, not measured values. A real capacitor bank is sized against a facility's actual load and confirmed by whoever supplies and commissions it.
The theory behind power-factor correction
Questions
Power-factor correction FAQ
Correction-specific questions that come up once a facility is actually sizing or specifying a capacitor bank.
How do capacitor banks physically correct power factor?
A capacitor draws current that leads voltage by roughly 90°, the mirror image of the lagging current an inductive load like a motor draws, so wiring a capacitor bank in parallel with the load lets the two currents partially cancel at the point where they meet. The motor still draws exactly the lagging current its magnetic field needs, but that current now comes largely from the capacitor bank sitting a few feet away rather than traveling all the way back through the utility feeder, which is what shrinks the current the meter actually sees.
What happens if a facility over-corrects past a power factor of 1.0?
Adding more capacitance than a load needs pushes the power factor leading rather than unity, and a leading power factor can bring its own problems: voltage rise at light-load periods, resonance with certain harmonic-producing equipment, and in some cases a utility penalty of its own for over-correction. As general reference, most correction projects target a power factor in the 0.95 to 0.98 range rather than a theoretical 1.0 specifically to leave margin against this, and a licensed electrical contractor sizes a bank against the facility's actual load profile rather than its single worst-case reading.
Why are motors typically the main cause of low power factor in a facility?
A motor's stator windings need a magnetizing current to sustain the rotating magnetic field that turns the rotor, and that current is almost entirely reactive: it does no work of its own but still has to flow every cycle, which is what drags the facility's overall power factor down. A facility running mostly resistive loads such as heating elements or incandescent lighting sits close to a power factor of 1.0 by default; one with compressors, pumps, fans and conveyor motors running lightly loaded relative to their nameplate rating typically sees the lowest power factor, since a lightly loaded induction motor draws close to its full magnetizing current while contributing very little real power.
Does power-factor correction lower the actual electricity bill, or does it only avoid a surcharge?
Correction does not reduce the kilowatt-hours a facility is billed for, since kWh measures real power and the motors are still doing the same amount of work, its main financial effect is removing a kVA-demand or low-PF penalty charge that was riding on top of the energy charge. There is a smaller secondary saving too: less current flowing through the facility's own transformers, feeders and conductors between the correction point and the utility meter means slightly lower resistive losses in that wiring, though this is usually a minor line item next to the surcharge itself.
What's the difference between displacement power factor and true power factor when harmonics are present?
Displacement power factor is the phase-angle relationship this page describes, the lag between voltage and the fundamental (60 Hz or 50 Hz) component of current, and it is what a capacitor bank sized by the tan(cos⁻¹PF) method actually corrects. True power factor also folds in current distortion from harmonics, produced by variable-frequency drives, LED drivers and other switching electronics, and a load can have a good displacement power factor while still showing a poor true power factor. Correcting a harmonic-heavy facility with plain capacitors can even amplify a resonance at some harmonic order, so a facility with significant nonlinear load is a case for an engineer or the capacitor-bank supplier to evaluate rather than a general reference page.
Are single-phase and three-phase loads corrected differently?
The underlying kVAR = kW × [tan(cos⁻¹PF₁) − tan(cos⁻¹PF₂)] math is identical either way, since it works from total real power and the power-factor angle rather than the number of phases. The hardware differs: a single-phase correction is typically one capacitor (or a small parallel bank) sized directly against that circuit's kVAR, while a three-phase correction bank is usually built from three matched capacitor sections connected in a balanced wye or delta arrangement across all three phases, so the total kVAR figure ends up split roughly evenly across the three legs rather than concentrated on one.
Does a correction capacitor bank ever need to be resized as a facility's load changes?
Yes, as general reference, a bank sized against one snapshot of a facility's motor and equipment mix can under-correct after equipment is added and over-correct toward a leading power factor after equipment is removed or upgraded to more efficient, higher-PF replacements. Facilities with a fluctuating load profile often use automatic capacitor banks that switch capacitor steps in and out to track the load in real time rather than a single fixed bank, and periodic power-factor monitoring is the way an out-of-date bank gets caught before it turns into an unexpected surcharge or an over-correction problem.