The power factor (pf) of an electrical service is the ratio of actual power use to apparent power. A circuit with predominantly lights has a pf of close to unity, while a circuit with many motors has a lagging power factor. It’s not unusual to see a pf as low as 0.75, or 75 percent. This means that even though the utility delivers and charges for 100 units of electricity, only 75 units are available to do actual work at the installation.
The cheapest solution to minimize the power-factor billing charge is to balance lighting and motor loads on each main service branch to a building. The lighting circuits offset a part of the motor load. Large facilities have a separate equipment branch for all the motors in the facility, so it is easy to normalize (change to equal unity or 100 percent) the lagging power factor at a single location.
Another solution is to install a bank of capacitors. They’re usually put at each piece of large equipment (e.g., chiller motors or pump motors), ahead of groups of small motors (e.g., fan motors in a mechanical room powered from a remote wireway) or at the main service entrance. The installation is straightforward and inexpensive, and the savings are immediate. The only drawback is that the capacitance can amplify the existing harmonic distortion in the circuit, causing problems in sensitive electronic equipment such as computers. In such situations, it may be preferable to use a synchronous motor instead of the capacitance for power-factor correction, for a cleaner power circuit.
The synchronous motor is an expensive means to correct power factor unless the motor is used regularly to perform some useful task, such as for an elevator, domestic-water pump, or air-handler fan. More extensive facilities can rig the motor up to a generator, to produce power to be used at the facility or even fed back into the utility grid for a credit on the utility bills.
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Excerpt from Energy Conservation Projects.