Power Factor Correction: Cutting Wasted Capacity in Commercial Buildings

Power factor correction reduces the apparent power a building draws from the grid, which can lower demand charges billed in kVA and free up capacity in the site's electricity supply. It is most valuable for businesses with many motors, compressors and pumps on network tariffs that charge for demand in kVA rather than kW. It does little for a site billed only in kW or kWh, so the first step is always to check the bill and log the site before anyone sizes equipment.

kW, kVAr and kVA in plain terms

Electrical equipment draws two kinds of power. Real power, measured in kW, does the useful work. Reactive power, measured in kVAr, sets up the magnetic fields in motors and transformers but does no work itself. Together they make up apparent power, measured in kVA, which is what the cables, transformer and supply actually have to carry.

Power factor is the ratio of real power to apparent power. A power factor of 1.0 means every kVA is doing useful work, while a lower figure means the site draws more current than its real load requires. For a site with a 200 kW load, the difference is easy to see:

The same work gets done in every row. At a low power factor, though, the site is paying for, and tying up, supply capacity it never uses. That wasted capacity can also limit room for new equipment such as EV chargers or extra refrigeration.

Does your bill actually charge for kVA?

Before considering correction, check how your demand is billed. On a business electricity bill, look for:

• A demand or capacity charge expressed per kVA, often shown monthly
• A charge based on the highest kVA recorded over a set period, which can keep costing you long after the peak itself
• A power factor figure, or a note about minimum power factor requirements

Some tariffs also set the charge from the highest demand recorded during particular hours, such as weekday afternoons, so it helps to know when your peak actually happens.

If demand is billed in kW, correcting power factor will not reduce that line, although it can still free up capacity. Network tariffs vary between sites, so a Commercial Bill & Tariff Audit (from $350 per site) or a Demand-Charge Analysis (from $690 per site) is a sensible first step when the bill isn't clear. Both prices are indicative, and both services are listed in our energy market.

Where poor power factor comes from

Inductive loads are the usual cause. In commercial and industrial buildings we most often find:

• Induction motors, particularly oversized or lightly loaded ones, which have a much poorer power factor than motors running near full load
• Refrigeration and air compressors
• Pumps and fans running without variable speed drives
• Welding equipment
• Older fluorescent lighting with magnetic ballasts
• On-site transformers operating at light load

Modern electronic loads, such as variable speed drives, LED drivers and IT equipment, affect the picture differently. They can produce harmonics, which distort the current waveform and complicate correction. It is also worth tackling poor power factor at the source: right-sizing motors and fitting variable speed drives to pumps and fans can improve power factor and sometimes cut energy use as well.

Why we log before sizing anything

A capacitor bank sized from a single bill or a quick meter reading is a guess. Our approach starts with power quality logging, usually for about a week, to capture a full cycle of shifts, start-ups and quiet periods. Our Power Quality Analysis (from $1,990 for 7-day logging and a report, indicative) records:

1. kW, kVAr, kVA and power factor across the operating week
2. Harmonic levels, which determine whether standard or detuned correction is needed
3. Voltage levels and imbalance between phases
4. The performance of any existing correction equipment

That last point matters. Many sites already have a capacitor bank, but failed capacitors, blown fuses or a faulty controller mean it no longer corrects much. Repairing an existing bank can cost far less than replacing it.

Sizing and choosing correction equipment

With logged data, correction can be sized to the reactive power the site actually draws. The main choices are:

• Automatic stepped capacitor banks at the main switchboard, which switch stages in and out as the load changes
• Detuned banks with reactors, used where harmonics could otherwise cause resonance and early capacitor failure
• Active correction or filtering for sites with fast-changing loads or significant harmonics
• Correction at individual large motors, where one machine dominates the reactive load

A common target is a power factor of around 0.95 to 0.98, which captures most of the benefit without over-correcting into a leading power factor. Our Power-Factor Correction service starts from $9,900 per site installed (indicative), with the final price depending on the logged results and the switchboard. All installation work is carried out by licensed electricians.

Correction equipment also needs ongoing care. Capacitors age, contactors wear and fuses fail, so a yearly check of each step and the controller stops the benefit from quietly disappearing over time.

How solar and batteries change the picture

Solar reduces the real power a site takes from the grid, but inverters on standard settings generally don't supply the site's reactive power, so the grid still provides the kVAr. The power factor measured at the meter can therefore fall while solar is generating, even though the kVA drawn from the grid has also dropped. This can look alarming in a report, but it doesn't necessarily mean higher charges. Where correction is planned alongside commercial solar or a battery, we design them together, and some inverter settings can contribute reactive power within the limits the network allows. Our commercial solar page covers how we approach demand-focused design.

Next steps

If your business pays kVA demand charges or is running short of supply capacity, request a quote and include a recent bill. Our team will check how your demand is billed, advise whether logging is worthwhile and explain the options before any equipment is specified. If solar is also on the table, the commercial ROI calculator gives a starting estimate to discuss.

Frequently asked questions

Will power factor correction reduce our kWh usage?

Only slightly. Correction reduces the current flowing through cables and transformers between the meter and the correction equipment, which trims some resistive losses, but the machines themselves use the same real energy as before. The main benefits are lower kVA-based demand charges and more usable capacity. If anyone promises large kWh savings from correction alone, ask them to show exactly how they calculated them.

How can we tell if our existing capacitor bank has failed?

Warning signs include a power factor on your bill that has drifted lower over time, alarms or error codes on the bank's controller, steps that never switch in, and unusual heat or noise from the enclosure. Don't open the cabinet to look, because capacitors can hold a dangerous charge even after isolation. A licensed electrician can test the bank safely and tell you whether repair or replacement makes sense.

Does installing power factor correction require a shutdown?

Connecting new equipment to the main switchboard usually needs a planned outage, although its length depends on the switchboard and the connection method. Most of the work, such as mounting the enclosure and running cables, happens beforehand with the power on. We schedule the connection outside operating hours where possible and agree the timing with you well in advance, so production and trading are not caught by surprise.