Power Factor is the measure of how effectively you are using electricity, it is calculated as the ratio of kw to kva thus a high PF signifies a good utilization of electricity whereas a low PF would mean ineffective usage of energy.
Power factor correction is the process of aiming to improve power factor and bringing it closer to 1 unit, thereby reducing apparent power (kva), apparent power is the product of voltage and current being supplied to an electrical utility. Electric utilities charge customers a higher rate when PF falls below a certain level, commonly around 90% and a demand charge component (based on Kva) is also included. The reason for this is that a low PF results in an increase in the generation and transmission capacity of the electric utility to handle active power components, requiring additional installation of additional capacity.
A low PF results in a higher kva and thus electric utilities will charge you a higher electricity bill for the same load, so savings can be made from improving a site’s PF. This is usually done with Power Correction Units
PFC units are capacitors added to a business’s power distribution system and corrects low PF. This is done by an automatic controller that switches capacitors and reactors, on and off. It also utilizes a fixed capacitor bank. It offsets inductive currents by allowing equal and opposite capacitive currents, neutralizing the inductive currents. The capacitors thus reduce the total current and apparent power that is drawn from the utility company. In most cases, where an installation is sized to maximum demand, this will usually have a payback period of under two years.
Some network operators use KVA and KVAR billing rather than KW demand billing. When we draw power from the grid, the two types of power are Real Power and Reactive Power. Real power is consumed from resistive loads such as lighting, heating, cooling. Reactive power is the electricity that flows back and forth from the source. The total demand on the network is total power, the sum of real power and reactive power.
Running heavy-load appliances like pumps, motors, and welders or transformer-based appliances like laptops and computers would likely result in a low PF as these appliances draw Reactive Power.