Why does a utility add a power-factor penalty?
Real work — turning motors, heating elements, moving data-center cooling — is measured in kilowatts (kW). But inductive equipment also draws reactive power, measured in kilovolt-amperes reactive (kVAR), that does no useful work yet still flows through the conductors, transformers, and switchgear feeding a site. The vector sum of the two is apparent power in kilovolt-amperes (kVA), and the ratio of real to apparent power is the power factor.
When power factor drops, the utility has to carry more current to deliver the same kilowatts, so most North-American utilities bill for it. BC Hydro applies a surcharge when a business customer’s average power factor for the billing period falls below 90%. Hydro One takes a different route to the same place — if the ratio drops below 90%, it bills on 90% of peak kVA instead of kW, so a poor power factor directly inflates the demand charge. Either way, a facility running at 0.75 is paying to move reactive current it never converts into work.
What does power factor correction actually do?
Reactive power has to come from somewhere, but it does not have to come from the utility. A power-factor-correction capacitor bank installed at the facility supplies reactive power locally, close to the inductive loads that demand it. The reactive current then circulates between the capacitors and the motors instead of traveling all the way back to the substation, and the metered power factor climbs toward unity.
The dominant sources of reactive demand are lightly loaded induction motors, welding sets, and the magnetizing current of every transformer on the site. A capacitor bank sized to those loads — typically installed alongside the low-voltage switchgear and MCC that already distributes power to them — offsets the reactive draw and shrinks the gap between kW and kVA. Because the utility measures power factor at the revenue meter, correction only needs to sit upstream of the CT metering and distribution cabinet to change the bill.
Why do harmonics change the design?
Here is where a simple capacitor bank becomes an engineering problem rather than a purchase. Many sites are full of non-linear loads — variable-frequency drives, rectifiers, LED drivers, EV chargers, UPS systems — that inject harmonic currents back into the network. Capacitors present a low impedance to those high-frequency currents, and the capacitance can form a resonant circuit with the inductance of the supply transformer.
If that resonance lands near a harmonic the loads are producing, currents amplify, capacitors overheat, fuses clear, and voltage distortion rises across the whole bus. IEEE 519 sets the reference point for this: at the point of common coupling, it limits total harmonic voltage distortion to 5% and any individual harmonic to 3% for medium-voltage buses from 1 kV to 69 kV. A capacitor bank that pushes a site past those limits is not a fix — it is a new fault waiting to happen.
The standard mitigation is a detuned capacitor bank, in which a series reactor tunes each step below the lowest significant harmonic (commonly the 5th). The reactor shifts the natural resonant frequency down into a harmless band, protects the capacitors, and keeps the installation within IEEE 519. Where harmonic content is severe, an active harmonic filter or a battery energy storage system with grid-support functions may be layered in, but detuned passive correction remains the workhorse for most industrial buses.
Where does power factor correction make the most sense?
The payback is clearest where the reactive load is large and steady: industrial and EPC plants with banks of induction motors, pumping and compression stations, and manufacturing lines running drives. Facilities already invested in on-site generation or commercial and industrial storage benefit from clean power factor too, because inverters and interconnection equipment are specified against apparent power, not just real power.
It matters less where loads are small, resistive, or already corrected at the equipment. And it is not a substitute for peak-demand management — capacitors correct the reactive component, while shaving real-power kW peaks is a job for storage. The two are complementary, not interchangeable.
What should a buyer specify?
- Automatic, stepped switching. Loads vary through the day, and over-correction at light load can push power factor leading, which some tariffs also penalize. An automatic controller adds and removes steps to hold a target.
- Detuned reactors rated for the site’s harmonic spectrum, sized so the bank stays within IEEE 519 at the point of common coupling.
- Capacitor and reactor thermal ratings matched to ambient and harmonic loading, with proper venting inside the switchgear and distribution lineup.
- Metering that reports power factor at the revenue point, so correction is verified against the actual billing determinant rather than a nameplate assumption.
- Standards basis. Equipment designed and built to IEEE 519 and the applicable NEC/CEC installation rules; UL (cULus)/CSA certifiable on request.
Getting these right converts a recurring surcharge into a one-time capital item with a measurable return. Entogo builds power-factor-correction capacitor banks, switchgear, and metering in one vertically integrated factory, which lets the correction, the harmonic study, and the distribution equipment be engineered as a single coordinated package — and shortens the wait between specifying a fix and energizing it. For a site-specific review, a transformer and distribution quote or a note to the engineering team is the place to start.
