Power Factor Correction: What It Is and When It Saves UK Businesses Money

If your business runs significant motor loads — pumps, compressors, fans, conveyor drives, refrigeration plant — there’s a reasonable chance you’re paying for electricity you’re not actually using. Reactive power is a real cost on many commercial tariffs, and power factor correction is one of the few efficiency interventions with a straightforward, calculable payback.

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What power factor actually means

Power factor is the ratio of real power (kW — the power doing useful work) to apparent power (kVA — total power drawn from the grid). A power factor of 1.0 means every unit drawn from the grid is doing useful work. A power factor of 0.8 means 20% of the power drawn is reactive — it flows back and forth between your equipment and the grid without doing useful work, but still needs to be generated and transmitted.

Induction motors are the primary cause. They draw reactive current to establish their magnetic fields. This doesn’t appear as kilowatt-hours on your bill — but it does appear as reactive power charges (kVArh) on many half-hourly tariffs, and it inflates your total current demand, affecting maximum demand readings and capacity charges.

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How it appears on your bill

For half-hourly customers on pass-through contracts, reactive power units (kVArh) appear as a separate line item, charged when power factor falls below 0.95. On some tariffs, the capacity charge is set against your maximum kVA demand rather than kW — meaning poor power factor directly inflates network capacity costs, independent of the reactive unit charge.

For businesses on all-inclusive fixed contracts, the supplier has absorbed the reactive cost into the blended unit rate. You’re still paying — it’s just not visible as a line item. When you move to a pass-through contract, the reactive charges become explicit.

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What power factor correction equipment does

Power factor correction works by installing capacitor banks at your main distribution board. Capacitors supply reactive current locally — meeting your motors’ reactive demand without drawing it from the grid. Automatic power factor correction (APFC) panels switch capacitor banks in and out as load changes through the day, maintaining a target power factor (typically 0.95 or above) regardless of how much motor load is running at any given time. This is more effective than fixed correction for sites where motor load varies significantly — manufacturing shifts, refrigeration with variable loads, HVAC cycling.

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The numbers

A manufacturing site spending £150,000 per year on electricity with a power factor of 0.82 and reactive charges visible on its bill can typically expect savings of £8,000–18,000 per year after correction. APFC panel installation for a medium-sized industrial site typically costs £8,000–20,000, giving payback of 12–30 months. The equipment then operates for 15–20 years with minimal maintenance.

Before commissioning, get a power quality survey including harmonic analysis. Variable speed drives (VSDs) — common on the same sites that benefit from PFC — can generate harmonics that interact badly with standard capacitor banks. Detuned or filtered capacitor banks address this, at higher cost.

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Who benefits most

Power factor correction is most clearly justified for food manufacturing and cold storage; automotive workshops; textile and paper manufacturing; water treatment and pumping; and any site with motors above 11kW running significant daily hours. It’s less likely to pay back on sites dominated by resistive loads such as electric heating or ovens, or by IT infrastructure.

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The procurement connection

We’ve seen businesses implement PFC between contracts specifically to improve their half-hourly consumption profile before going to tender, reducing the unit rates offered by suppliers who price partly on apparent power demand. Telnergy reviews power factor data where available as part of our procurement process — if reactive power is a material cost on your site, we’ll flag it before you sign the next contract.

📱 WhatsApp: 07360 272168 | 📧 hello@telnergy.com | 📞 01202 028888 Telnergy Limited · Independent commercial energy consultancy since 2002 · Ofgem registered TPI · ADR Ref E3561 · CRN 04576876 · Christchurch, Dorset

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FAQ

How do I know if my business has a poor power factor?

Check your electricity bill for reactive power charges (kVArh), or ask your supplier for maximum demand data including kVA. If your kVA figure is significantly higher than your kW figure, your power factor is below 1.0. A power quality monitor clipped to your main incomer will give a precise reading within minutes.

Does power factor correction affect my equipment?

Correctly specified PFC equipment has no effect on connected loads. Capacitor banks are connected in parallel and supply reactive current locally without interfering with equipment operation. Incorrectly specified equipment — particularly where harmonics haven’t been assessed — can cause problems, which is why a power quality survey before installation matters.

My supplier says I’m not being charged for reactive power — should I still investigate?

If you’re on an all-inclusive contract, reactive power costs are embedded in your unit rate rather than itemised. When your contract comes up for renewal and you receive pass-through quotes, the reactive element becomes visible. It’s worth understanding your power factor before that point so you can act between contracts if the numbers warrant it.