Essentially, power factor is a measure of how effectively your equipment at site uses electricity. It is the ratio of the ‘real power’ (kW) to the ‘apparent power’ (kVA) supplied to your site.
Think of the electricity supplied to your site as a glass of beer or latte, made up of both liquid and froth on top. As you pay for the whole glass, you want more of the liquid and less froth to get value for the money you pay. Poor power factor, like a beverage with too much froth (wasted energy), results in extra expense for nothing.
Power Factor is measured between 0 and 1. The higher your power factor (closer to 1), the more efficient your work site is at utilising supplied power, which equates to lower power bills.
In the below diagram, the amber liquid represents real power (kW you see on your bill) and the froth represents reactive power (measured in kVAr).
These days Networks charge many businesses for the demand they place on the electricity grid (apparent power in the diagram). It therefore pays to correct supply inefficiencies to have the best power factor possible.
Having the best possible power factor will do more than just lower your power bills. Other benefits include: