Utility Power Factor Penalty Calculation Simplified

9/24/22, 3:08 AM Utility Power Factor Penalty Calculation Simplified | Engineer Calcs
Get Exclusive Tips And Updates In

The Engineer Calcs Newsletter
Email 
Menu
Utility Power Factor Penalty Calculation Simplified

Sign Up!
January 23, 2021 by Engineer Calcs
Thought
The effectsProvoking Posts
of low power factor impact electric utilities in many different ways. I’ll show you how
through a utility power factor penalty calculation.
7 Must Know Mechanical Engineering Design Tips
You’ll see why all large utility customers do everything they can to maintain a good power
Is Engineering Worth It? 6 Reasons It Is!
factor.
Over 100 Powerful Engineering Resume Buzzwords
To generalize, residential customers pay for real power. While commercial and industrial
Homeowner’s Guide For a Structural Engineer
customers
Inspection
pay for apparent power. I’ll explain this more in the depth in the following sections.
12 Portable
Before Generator
we do Maintenance
any math, Tipsunderstand
let’s better to Save the types of electrical power.
Money
Power factor and types of electrical power

What is power factor? Power factor is just the name given to the ratio of real power to apparent
power. In other words, the ratio of real power used in a circuit to the power that is apparently
drawn from the source.
I also like to think of power factor as the degree a load matches a resistive load. A purely
resistive load has a power factor of 1.
While some loads have a power factor of less than 1. These loads require reactive power to
operate. Such as transformers and induction motors.
Let’s dive into the three types of electrical power to make more sense of everything.
Real power (P)
https://engineercalcs.com/power-factor-penalty-calculation/ 1/19
The energy a load consumes. In other words, the electrical energy converted into another
energy form. The electrical
Get Exclusive Tips And energy is thus “consumed,”
Updates In and isn’t returning.

For example, the converted energy can be heat, light, or mechanical power.
YouEmail
measure real power in watts (W).
Sign Up!
Reactive power (Q)
Represents the electrical energy stored and then released. The storage is in the form of a
magnetic field or electrostatic field, for an inductor and capacitor respectively.
Thought Provoking Posts
An example is an induction motor. Induction motors require reactive current to function. The
current’s reactive
7 Must Know component
Mechanical creates
Engineering theTips
Design rotating magnetic field in the motor. While the real
current component converts the real electrical power to mechanical power.
More specifically,
Over 100 the motor’s
Powerful Engineering magnetic
Resume field stores energy. This energy transfers to and from
Buzzwords
the power source. This happens every time the magnetic field polarity reverses. Similarly, the
Homeowner’s
energy Guide For
can transfer toaand
Structural Engineerfactor compensation capacitors. This transfer of energy
from power
Inspection
is reactive power.
12 Portable Generator Maintenance Tips to Save
You measure reactive power in volt-amperes reactive (VARs).
Money
Apparent power (S)
It’s what the power source inputs into a circuit. It’s the total power in an AC circuit, both
dissipated and absorbed.
In other words, the combination of reactive power and true power.
You measure apparent power in volt-amperes (VAs).
Now, take a look at the below power factor triangle. It’ll help you better visualize these power
relationships.
Notice how apparent power is the hypotenuse. Also, you can apply the Pythagorean Theorem.

Email
Sign Up!

Inspection

Money
Effects of low power factor on utilities

Let’s switch gears and see why utilities want their customers to maintain a good power factor.
So much so, they’ll penalize you if your power factor gets too low.
Generators
A generator is normally rated in kVA.
Also, you’ll notice most generators have a 0.8 power factor rating. This is to support some
lagging power factor load. For example, a generator that feeds a bunch of induction motors in a
water treatment facility.
The 0.8 generator power factor means the full load kW capacity is 80% of the load kVA. Of
course, as long as you
Get Exclusive maintain
Tips or keep the
And Updates Inpower factor higher.
Imagine you have a 100 kVA generator with a power factor of 0.8.
Email
Sign Up!
P = 80 kW
%
Now,
Is what happens
Engineering Worth It?when the power
6 Reasons It Is! factor drops below 0.8? The increased total kVA reduces
the generator’s capacity. This is because of the increased lagging reactive kVA component. The
current flow increases and causes a voltage drop.
Inspection
This commonly happens when a facility is blindly retrofitted. For example, if you connect more
induction motors than designed to the generator. The generator would then need to support
more
Moneymagnetic fields versus “doing real work.”
Important Note: reactive power isn’t useless. Yes, reactive power doesn’t do
real work.
But, AC machines wouldn’t operate without reactive power. So how do you do
Email real work without operating machines? You don’t!
Think of electric
Sign Up! motors. They rotate and do work through the interaction of
magnetizing fields created in the motor windings. These magnetic fields need
a source of magnetism.
Thought Provoking Posts for an induction motor comes from the AC line it’s
The magnetization
connected to. More specifically, this magnetism comes from the power source.
Without the supplied magnetizing kVAR, the induction motor wouldn’t
Is Engineering Worth It? 6 The
operate. Reasons It Is!
catch is, the magnetizing kVAR reduces the power factor.

Inspection

Money

Email
Sign Up!

Inspection

Money
Cutaway view of induction motor (Photo Credit: Stunteltje)
Transformers
Transformers need a magnetic field for power conversion. Converting power from a primary to
secondary voltage.
The power factor of a load directly affects the real power capacity of a transformer though.
Refer back to the generator we just discussed.
Also similarly, the voltage drop experienced by a transformer through an increase in load is
greater with a lagging power factor.
As a result, the voltage regulation of a transformer suffers from a poor power factor.
Distribution line losses
Utility’s size wires in electric circuits to carry the required current.

But what happens when the connected customer’s power factor drops?
At a low power factor, the circuit needs to carry a reactive kVA component on top of the kW.
Email
More current will now run through the wires.
The utility will nowSign

needUp!
to make the wires larger. For a given kW, a low power factor will draw
more current than a high power factor.
Also, keep in mind, the resistance losses ( ) of the conductor. These losses are proportional
Thought Provoking
to the current Posts them.
flowing through
So,
7 theKnow
Must voltage drop atEngineering
Mechanical the load end of lines
Design Tips can be a huge problem. Voltage drop without a
doubt is a common theme when it comes to a poor power factor.
To drill
Over 100a Powerful
little deeper, the same
Engineering problem
Resume happens with current limiting reactors. These are just
Buzzwords
large coils of wire made to produce a magnetic field.
Inspection
You use current limiting reactors to reduce short circuit current. But they’ll also reduce your
power
12 system’s
Portable power
Generator factor. I go
Maintenance over
Tips how to size a current limiting reactor for a
to Save
Money
substation. This will help you better understand inductive loads. Also, the working principles at
play.
Power cost
A utility kilowatt-hour (kWh) meter tracks energy usage. This is how utilities determine how
much to bill you per your energy consumption.
Now, on top of the kWh charge, utilities have a penalty for a low power factor in their billing
rates. At the same time, they have incentives for high power factors.
As a scenario, the line losses vary per the square of the line current ( ). The line current is
higher at a lower power factor. The utility certainly isn’t going to eat the cost on behalf of the
customer.
Important Note: there are benefits to purchasing power through a power

factor clause. The customer benefits when they have a high power factor.
Electric
Email utilities reducing power costs
Electric utilities need to Up!
Sign provide power to all their customers. This also includes the reactive
power needs of their customers.
To accommodate everyone, electric utilities need to upgrade their infrastructure a lot. They need
to spend money
Thought on thePosts
Provoking following higher rated equipment:
Generators
Transformers
Power lines
Other electrical equipment
Inspection
Everything comes at a cost!
To pay for these upgrades, utilities have a power factor penalty. And for some customers, the
Money
penalty cost of reactive power is a big portion of their bill.
But if a customer installs capacitors, they can have huge cost savings. They’ll eliminate the utility
power factor penalty.
Important Note: inductive loads require reactive power (kVAR). Again, a

motor requires inductive power for magnetizing. In return, the apparent power
increases from the lagging reactive power.
Email
Now,Sign
power
Up!factor correction capacitors improve power factor. They provide
leading reactive power that cancels out the lagging reactive power. So, they’re
a great way to improve a power system’s power factor.
Thought Provoking Posts loads improve the power factor. While inductive loads
In short, capacitive
reduce the power factor.

Utility power factor penalty calculation
Finally, let’s calculate the benefits of installing capacitors.
Inspection
I’m going to use the following typical utility rates you’d find in most U.S. states:
Demand
Money charge:
Rates (Demand Charge) Per Meter, Per Month
First 1,000 kW of billing demand $10,500.00
Over 1,000 kW of billing demand, per kW $12.00
Energy charge:
Rates (Energy Charge) Per Meter, Per Month
First 100 kWh per kW of billing demand per kWh $0.22
Next 300 kWh per kW of billing demand per kWh $0.28
All excess, per kWh $0.35
Important Note: let’s define the power factor charge and fuel cost
adjustment.
Power Factor Charge: we’ll use the above-listed rates in our calculation. The
Email total charge for any month decreases or increases by 0.1% for each 1% that
the average power factor of the customer is greater or less than 85%.
Sign Up!
We’ll compute the average power factor using the ratio of lagging kilovolt
ampere-hours to kilowatt-hours. The calculation will be over a single month.
Thought Provoking
Fuel CostPosts
Adjustment: this is the total billed kilowatt-hours multiplied by
$0.006 per kWh. This figure isn’t impacted by adjustments for voltage or
power factor
7 Must Know Mechanical either. Design Tips
Engineering
Is Engineering Worth It? 6 Reasons

This $0.006 It Is!
adjustment captures the amount of required revenue to cover the
cost
Over 100 Powerful to produce
Engineering power.Buzzwords
Resume The utility compares the actual cost of fuel and
purchased power to the costs they had projected. Because energy costs
fluctuate.
Inspection

EXAMPLE:
Money imagine Factory Z has 5,000 kW of load at 0.65 power factor. Their monthly
electricity consumption is 3,750,000 kWh/month. They purchase their power from Utility X.
Demand charge
First 1,000 kW = $10,500.00
Over 1,000 kW (bill at $12.00 per kW) = (5,000 kW – 1,000 kW) x $12.00/kW = $48,000.00
Demand charge subtotal: $10,500.00 + $48,000.00 = $58,500.00
Energy charge
First 100 kWh/kW demand (100 x 5,000 x $0.22) = $110,000.00
Next 200 kWh/kW demand (300 x 5,000 x $0.28) = $420,000.00
All excess kWh (3,750,000 – [100 x 5,000] + [300 x 5,000]) x $0.35 = 1,750,000 x $0.35 =
$612,500.00
Energy charge subtotal: $110,000.00 + $420,000.00 + $612,500.00 = $1,142,500.00
Email
Now, we add the demand subtotal with the energy subtotal.
Sign Up! = $1,201,000.00

$58,500.00 + $1,142,500.00
Power factor penalty
(85-65)
Thought x 0.001 x $1,201,000.00
Provoking Posts
20 x 0.001
7 Must Knowx Mechanical
$1,201,000.00 = $24,020.00
Engineering Design Tips
Is Engineering
Fuel Worth It? 6 Reasons It Is!
cost adjustment
3,750,000 kWh/month x $0.006/kWh = $22,500.00
Inspection
Total monthly bill

Now, we add all the following charges together:
Money
Demand charge
Energy charge
Power factor penalty
Fuel cost adjustment
$1,201,000.00 + $24,020.00 + $22,500.00 = $1,247,520.00
Utility power factor calculation with capacitors installed

Here, we’ll do a second round of calculations with capacitors. Our goal is to improve the power
factor to 0.95.
Also, we’ll calculate the power cost reduction and payoff in years for the capacitors.
We’ll use the same 5,000 kW load, and 3,750,000 kWh per month electricity consumption.

Calculating capacitor size to improve power factor to 0.95
At 0.65 , , where = P.F. angle
Email
Sign Up!
At 0.95 ,

Let’s calculate the apparent power using the power factor of 0.65. We already know the real
power is 5,000
7 Must Know kW.
Mechanical Engineering Design Tips
Homeowner’s Guide ForkVA

= 7,692.30 a Structural Engineer
Inspection

Money
= 7,692.30 kVA x 0.76 = 5,846.15 kVAR
We’ll now do the same calculation using the power factor of 0.95.
= 5,263.16 kVA
= 5,263.16 kVA x 0.31 = 1,631.58 kVAR
Now, take a look at the below power triangle. This will piece together everything we just did in
our calculation.
You can see how the added kVAR improves the power factor. Also, how the kVA drastically
drops.
Email
Sign Up!

Inspection

Money
Capacitor size required
= 5,263.16 kVAR – 1,631.58 kVAR = 3,631.58 kVAR
Capacitor cost
The installation cost of a capacitor per kVAR let’s estimate to be $40.00.
$40.00 x 3,631.57 kVAR = $145,263.20
Total cost reduction in the monthly bill
Power factor penalty savings (from P.F. 0.65 to 0.85) = $24,020.00

Power factor credit (from P.F. 0.85 to 0.95) = $12,010.00
Now, we calculate the loss reduction using the following math:
Email
(Monthly energy usage) x (Estimated 2% loss) x (Loss varies per ) x (kWh + Fuel cost
Sign Up!
adjustment) = 3,750,000 x 0.02 x 0.38 x ($0.35 + $0.006) = $10,146.00
Now, let’s add up the total savings per month.
Thought Provoking
Total savings per month:Posts
$24,020.00 + $12,010.00 + $10,146.00 = $46,176.00
Payoff
7 for capacitor
Must Know Mechanicalinstallation
Engineering Design Tips

= $145,263.20 / $46,176.00 = 3.15 months.
So it’s a no brainer
Homeowner’s to ainstall
Guide For a capacitor
Structural Engineerin this scenario. As the utility power factor penalty is
extremely costly.
Inspection

The payback from installing a capacitor will improve profit margins right away for Factory Z.
Money
At the same time, the utility power factor penalty cost shows the impact on Utility X.
Conclusion
A utility power factor penalty can greatly affect the bottom line of a company. These days we
heavily rely on AC machines. As we learned, AC machines need magnetism from their power
source to operate.
Now by eliminating power factor surcharges through capacitors, you can reduce your electricity
bill. All the while, maintain the operations in your facility.
This is even more important for businesses in states like California. As the cost of doing business
is increasing year after year.
What’s more, you increase the load-carrying capability of your existing circuits. Also, you
improve the supplied voltage at your equipment. A win-win!
What are your thoughts on the utility power factor penalty? What’s your view on the future of
energy billing by utilities?
Email
Featured Image Photo Credit: Stunteltje (image cropped)
Sign Up!
SUBSCRIBE TO ENGINEER CALCS NEWSLETTER
Get Daily
Thought Provoking PostsArticles And News Delivered To Your Email Inbox
Email

Sign Up!

Inspection
Engineer Calcs
12 Portable GeneratorKoosha started
Maintenance TipsEngineer
to Save Calcs in 2020 to help people better
Money understand the engineering and construction industry, and to discuss
various science and engineering-related topics to make people think.
He has been working in the engineering and tech industry in
California for over 15 years now and is a licensed professional electrical engineer,
and also has various entrepreneurial pursuits.
Koosha has an extensive background in the design and specification of electrical

systems with areas of expertise including power generation, transmission,
distribution, instrumentation and controls, and water distribution and pumping as
well as alternative energy (wind, solar, geothermal, and storage).
Koosha is most interested in engineering innovations, the cosmos, our history and
future, sports, and fitness.
 17 Ways on How to Motivate Your Engineers

 Get
The Exclusive Tips
17 Elon Musk And Strategy
Learning Updates In
Lessons
Leave a Comment
Email
Sign Up!

Name
Email
Inspection
Website
Money
Save my name, email, and website in this browser for the next time I comment.

Notify me by email when the comment gets approved.
Post Comment
Search …

Email
Sign Up!
Cable & Conductor
Factory
RMJT Cable

Inspection

Money

Email
Sign Up!
Cable & Conductor
Supplier

Customized Solutions, Can
Over 100 Powerful

Produce Engineering
and PackResume Buzzwords
as Your
Requirements, Free to Inquire.

Inspection

Money
Popular Posts
Homeowner’s Guide For a Structural Engineer Inspection
12 Portable Generator Maintenance Tips to Save Money
Recent Posts
CONTACT US
ADVERTISING
Is Engineering Worth It? 6 Reasons It Is! REPUBLICATION POLICY
DISCLAIMER & DISCLOSURE

Get
Over Exclusive
100 Tips And
Powerful Engineering Updates
Resume In
Buzzwords
COPYRIGHT POLICY
Homeowner’s Guide For a Structural Engineer Inspection
TERMS OF USE
12 Portable
Email Generator Maintenance Tips to Save MoneyPOLICY
PRIVACY

Sign Up!
Copyright © 2021 Engineer Calcs

Inspection

Money

Utility Power Factor Penalty Calculation Simplified - Engineer Calcs

Uploaded by

Copyright:

Available Formats

You might also like

Utility Power Factor Penalty Calculation Simplified - Engineer Calcs

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Utility Power Factor Penalty Calculation Simplified - Engineer Calcs

Uploaded by

Copyright:

Available Formats

9/24/22, 3:08 AM Utility Power Factor Penalty Calculation Simplified | Engineer Calcs

Get Exclusive Tips And Updates In

January 23, 2021 by Engineer Calcs

Power factor and types of electrical power

Real power (P)

The Engineer Calcs Newsletter

Apparent power (S)

In other words, the combination of reactive power and true power.

You measure apparent power in volt-amperes (VAs).

Get Exclusive Tips And Updates In

Thought Provoking Posts

7 Must Know Mechanical Engineering Design Tips

Is Engineering Worth It? 6 Reasons It Is!

Over 100 Powerful Engineering Resume Buzzwords

Homeowner’s Guide For a Structural Engineer

12 Portable Generator Maintenance Tips to Save

Effects of low power factor on utilities

A generator is normally rated in kVA.

Homeowner’s Guide For a Structural Engineer

12 Portable Generator Maintenance Tips to Save

Get Exclusive Tips And Updates In

Thought Provoking Posts

7 Must Know Mechanical Engineering Design Tips

Is Engineering Worth It? 6 Reasons It Is!

Over 100 Powerful Engineering Resume Buzzwords

Homeowner’s Guide For a Structural Engineer

12 Portable Generator Maintenance Tips to Save

Distribution line losses

Utility’s size wires in electric circuits to carry the required current.

Get Exclusive Tips And Updates In

The utility will nowSign

Important Note: there are benefits to purchasing power through a power

Important Note: inductive loads require reactive power (kVAR). Again, a

Is Engineering Worth It? 6 Reasons It Is!

Rates (Demand Charge) Per Meter, Per Month

First 1,000 kW of billing demand $10,500.00

Over 1,000 kW of billing demand, per kW $12.00

Rates (Energy Charge) Per Meter, Per Month

First 100 kWh per kW of billing demand per kWh $0.22

Next 300 kWh per kW of billing demand per kWh $0.28

All excess, per kWh $0.35

Is Engineering Worth It? 6 Reasons

12 Portable Generator Maintenance Tips to Save

First 1,000 kW = $10,500.00

Demand charge subtotal: $10,500.00 + $48,000.00 = $58,500.00

First 100 kWh/kW demand (100 x 5,000 x $0.22) = $110,000.00

Next 200 kWh/kW demand (300 x 5,000 x $0.28) = $420,000.00

Sign Up! = $1,201,000.00

Power factor penalty

12 Portable Generator Maintenance Tips to Save

Power factor penalty

Fuel cost adjustment

$1,201,000.00 + $24,020.00 + $22,500.00 = $1,247,520.00

Utility power factor calculation with capacitors installed

Get Exclusive Tips And Updates In

Thought Provoking Posts

Is Engineering Worth It? 6 Reasons It Is!