How power factor correction can lower your energy bill

Did you know that about 40 per cent of the cost of electricity comes from the infrastructure required to get it to homes and businesses? To reflect this, many energy retailers are now changing the way they charge businesses for electricity – by separating out the costs of the energy you use, from the cost of the infrastructure required.

If your business operates in a way that causes short term periods of high energy use, this could mean a higher energy bill. Let’s look at why…

What is peak energy use and why does it matter?

Peak energy use can occur when a significant number of electrical devices are turned on at the same time (such as motors, pumps, air conditioning or forklifts). To allow for these times of high usage, an energy retailer may bill you a demand charge.

Demand charges are based on the highest amount of electricity you use during the billing period, usually in 30-minute intervals. They reflect the fact that energy suppliers need to have a lot of infrastructure standing by, to ensure they can meet the maximum energy demand that could be placed on the network by users.

Using a water pipe as an analogy, energy charges (measured in kilowatt hours – kWh) are for the amount of water that comes through the pipe; while demand charges (measured in kilovolt amps – kVA), pay for the width of the pipe.

Previously, most energy retailers billed businesses based on energy charges, plus a service fee. Now, many energy retailers are billing businesses for a smaller energy charge, a demand charge, and a service fee.

If your bill includes a demand charge, you could pay more for electricity if you don’t use the network efficiently.

Electricity demand charges have typically been calculated on real power. But this is only part of the load placed on network infrastructure. Real power is the electricity that makes everything run on your site. Reactive power is electricity that your electronic devices and machinery ‘suck up’ but do not turn into useful output.

As a result, some electricity retailers now calculate demand charges on the amount of capacity required to support your business – a combination of the real power and reactive power you use. This measurement is called apparent power and is measured in kVA.

So, if your business is using a lot of reactive power, you could be paying higher demand charges than you need to. The good news is, by reducing your reactive power demand from the grid, it is possible to reduce the demand charge component of your electricity bill.

This is where power factor correction comes in.

One way to reduce reactive power usage is through power factor correction. Power factor refers to the ratio of real power to reactive power. The higher the reactive power demand relative to your demand for real power, the poorer the power factor.

Poor power factor means that a higher kVA is required to deliver a given kWh, leading to increased demand charges. Other negative effects of poor power factor include increased energy losses in cables, transformers, and switchboards and the potential for the overload and overheating of electrical infrastructure and equipment.

Power factor correction (PFC) equipment reduces the amount of reactive power supplied by the grid, which in turn reduces your demand charges.

Should I choose power factor correction or energy efficient equipment upgrades?

Power factor correction and energy efficiency equipment upgrades go hand-in-hand. Going back to the water pipe analogy, power factor correction can reduce the width of the water pipe (kVA), but doesn’t reduce the amount of water (energy) you need to get the work done (kWh). Energy efficient equipment will reduce the amount of energy (kWh) you use.

Some equipment (like motors and compressors) has a comparatively low power factor because of the way it works. This means some sites will always benefit from power factor correction, no matter how efficient the equipment is. And that’s why you need expert advice to figure out the best solution for your business.

The role of an independent energy expert

Power factor correction and energy efficient equipment upgrades are both great ways to reduce your energy bills. But getting the optimum outcome depends on your business operations, your equipment and your site. This means that independent advice is worth its weight in gold.

An independent advisor can analyse your historic electricity usage and forecast your ongoing costs, then recommend a solution that will save you money in the short and long term. Your advisor should help you to implement a complete power factor correction and/or energy efficiency solution from start to finish, including:

  • Equipment specification, including harmonic analysis
  • Design
  • Procurement and installation
  • After-sales service and warranties
  • Equipment finance
  • Asset management.

For more information, contact the Verdia team.