A manufacturing plant draws 500 kW of real power but pays for 714 kVA of apparent power — because its power factor of 0.70 means 30% of the current flowing through every conductor, transformer, and switchgear serves no productive purpose. Power factor (PF) is the ratio of real power (kW) to apparent power (kVA) in an AC circuit. A PF of 1.0 (unity) means all delivered current produces useful work. Most industrial and commercial loads — induction motors, transformers, fluorescent lighting, and electronic power supplies — have lagging power factors between 0.6 and 0.9, drawing reactive current that generates heat but no output.

The financial impact of low power factor is threefold: (1) utility penalties — most rates penalize PF below 0.85-0.90 via demand charges based on kVA rather than kW, or direct reactive power charges of $0.50-$2.00 per kVAR, (2) infrastructure oversizing — conductors, transformers, and switchgear must be rated for the total apparent power, not just real power, and (3) increased losses — I²R losses are proportional to current squared, so reducing current by 26% (PF 0.70 → 0.95) reduces conductor losses by 45%. A typical 500 kW facility with PF 0.70 can save $15,000-$40,000 annually through correction to 0.95.

Power factor correction is most commonly achieved by installing capacitor banks that supply reactive power locally, reducing the reactive current flowing through upstream conductors and transformers. Capacitor banks can be fixed (for constant loads like motors running continuously) or automatically switched (for varying loads where too many capacitors would cause leading PF). Automatic controllers measure PF continuously and switch capacitor steps in/out using contactors. Modern controllers use thyristor switching for fast response and reduced contact wear — essential in applications with rapidly fluctuating loads like welding shops or rolling mills.

When harmonic distortion is present (THD > 5%), standard capacitor banks can amplify harmonics through parallel resonance with system inductance. The resonant frequency of the parallel combination of system inductance and capacitor bank may coincide with a dominant harmonic (typically 5th or 7th). In these environments, detuned reactors (typically 5.67% or 7% tuning factor) are connected in series with capacitors to shift the resonant frequency below the lowest significant harmonic. A 7% detuned reactor shifts the resonant frequency to approximately 189 Hz — safely below the 5th harmonic (250 Hz) — preventing amplification while still providing effective PF correction at 60 Hz.

Capacitor technology selection impacts system reliability. Self-healing metallized polypropylene film capacitors (most common for PF correction) can withstand minor dielectric breakdowns — the ultra-thin metallization vaporizes around the fault, isolating it without catastrophic failure. Non-self-healing capacitors (all-film) provide higher capacitance density and lower losses but fail permanently when a dielectric breakdown occurs. IEC 60831 defines test requirements for both types. Capacitor banks should include discharge resistors (NEC 460.6 requires discharge to 50V or less within 1 minute for 600V capacitors) and individual fusing for each capacitor element.

Economic payback for power factor correction is typically 6-18 months in industrial environments. The calculation: annual utility savings = (current demand charge × kVA_before - demand charge × kVA_after) + reactive power penalty savings. Capacitor bank cost: approximately $25-50 per kVAR installed for fixed banks, $50-100 per kVAR for automatic banks. A 200 kVAR automatic bank costs $10,000-$20,000 installed, and correcting PF from 0.75 to 0.95 on a 500 kW load saves $15,000-$25,000 annually — yielding payback under 18 months in most utility territories.