Author: James Beck | Published: June 2026 | Reading time: 5 minutes
If you have ever looked at your business electricity bill and felt certain that something, somewhere, is quietly costing you more than it should, you are probably right. One of the most overlooked sources of wasted energy in commercial and industrial buildings is something called power factor, and most business owners have never heard of it. This post explains what power factor is, what power factor correction does, and how it fits into a broader strategy for reducing your energy costs in a meaningful and lasting way.
What Is Power Factor?
To understand power factor correction, you first need to understand what power factor actually measures.
When electrical equipment in your building draws power from the grid, it does not always use all of that power productively, some of the electricity that enters your building does useful work, which is called “active power,” and some of it creates a magnetic field that certain types of equipment need in order to function but which does not actually produce any useful output; this is called “reactive power.”
Power factor is simply the ratio between the useful power your equipment consumes and the total power that your electricity supplier has to deliver to your building in order for that consumption to happen. A power factor of 1.0, which is sometimes referred to as “unity,” would mean that every unit of electricity supplied is being converted into useful work with no waste at all. In practice, most commercial and industrial buildings operate with a power factor somewhere between 0.7 and 0.95, which means that between 5% and 30% of the electrical current being drawn is not doing anything productive.
Which Types of Equipment Cause a Low Power Factor?
The equipment most likely to cause a low power factor is anything that uses an electromagnetic coil or motor to operate. Induction motors, which are found in air conditioning systems, pumps, compressors, fans, and conveyor belts, are among the most common culprits in commercial and industrial settings. Fluorescent lighting with magnetic ballasts, transformers, and welding equipment can also contribute to a poor power factor, particularly in buildings where large numbers of these devices are running simultaneously.
This is why the businesses most likely to benefit from power factor correction tend to be manufacturers, large hotels, leisure centres, food and drink producers, and any organisation running significant amounts of motor-driven plant and equipment. If your building relies heavily on any of these types of machinery, the chances are that your power factor is lower than it could be.
How Does Power Factor Correction Work?
Power factor correction works by installing capacitors, which are energy storage devices, either at the individual piece of equipment that is causing the problem or at a central point in your electrical distribution system. These capacitors generate reactive power locally, which means that your building no longer needs to draw it from the grid. The result is that your overall power factor improves, the total current flowing through your electrical system decreases, and the amount of electricity your supplier needs to deliver in order to meet your demand is reduced.
The correction equipment is typically installed in a panel or cabinet connected to your main distribution board, and once it is in place it works automatically in the background without requiring any ongoing intervention from your team. Some more sophisticated systems use automatic power factor correction, which monitors the load on your electrical system in real time and adjusts the amount of reactive power compensation it provides accordingly, meaning it can respond dynamically as your equipment switches on and off throughout the day.
What Are the Benefits of Power Factor Correction?
The most direct financial benefit of power factor correction is a reduction in your electricity costs. Many energy suppliers charge large commercial and industrial customers a penalty, sometimes called a “reactive power charge” or “kVAr charge,” when their power factor falls below a certain threshold, typically around 0.95. If your business is currently paying these charges, power factor correction can eliminate them entirely.
Beyond the reduction in reactive power charges, a better power factor also reduces the amount of current flowing through your cables, switchgear, and transformers, which in turn reduces the heat those components generate and the energy losses associated with that heat. Over time this can extend the working life of your electrical infrastructure and reduce the frequency of maintenance interventions. In buildings where the electrical distribution system is already operating close to its capacity, improving the power factor can also free up additional capacity without requiring expensive infrastructure upgrades.
Is Power Factor Correction the Same as Voltage Optimisation?
This is a question worth answering clearly, because the two technologies are sometimes confused with one another, and understanding the difference will help you make better decisions about your energy strategy. Power factor correction and voltage optimisation are both energy efficiency measures that can reduce your electricity costs, but they address entirely different aspects of how electricity is delivered to and used within your building.
Power factor correction addresses the efficiency of how electrical current is used once it has entered your building; it reduces the amount of reactive power being drawn from the grid by adding local reactive power generation through capacitors. Voltage optimisation, by contrast, addresses the level of voltage being supplied to your building by the grid in the first place. Most UK businesses receive electricity at a voltage of around 242 to 253 volts, which is considerably higher than the 220 volts that most commercial equipment is actually designed to operate at most efficiently. A voltage optimisation unit sits between the incoming supply and your building’s distribution system and reduces the incoming voltage to a level that is closer to the optimal operating point for your equipment.
The two solutions are complementary rather than competing, and many businesses that have high energy consumption implement both as part of a comprehensive energy reduction programme. Power factor correction reduces the waste associated with reactive power; voltage optimisation reduces the waste associated with excess supply voltage. Together they can deliver energy savings that neither could achieve alone.
How Much Could Power Factor Correction Save?
The savings achievable through power factor correction vary considerably depending on the size of your building, the nature of your operations, the equipment you run, and whether your energy supplier is currently penalising you for a poor power factor. For businesses that are paying reactive power charges, the elimination of those charges alone can represent a meaningful annual saving. For businesses that are not currently being penalised, the savings tend to come primarily from reduced current flow and the associated reduction in distribution losses, which is typically a smaller figure.
As a general guide, businesses with a significant proportion of inductive motor-driven equipment and a power factor below 0.9 tend to see the most compelling returns from power factor correction investment. An energy survey or power quality assessment will give you a precise picture of your current power factor and a reliable projection of what correction would deliver for your specific site.
What Should You Do Next?
If you operate a commercial or industrial building with significant motor-driven equipment and you have not recently had a power quality assessment, it is worth finding out where your power factor currently sits. An assessment will also give you visibility of other energy saving opportunities across your site, including whether voltage optimisation, energy monitoring, or other measures could contribute to a reduction in your overall energy spend.
Powerhub Solutions offers free energy assessments for commercial and industrial sites across the UK, covering voltage optimisation, solar PV, refrigeration energy saving, and energy monitoring and management. If you would like to understand what energy savings are available at your site, you can book a free assessment with our team and we will give you a clear, honest picture of what is possible.
Book a free energy assessment here
