Calculating the return on Power Factor Correction

hexeiscoEnergy Management, Power Factor

Return on Power Factor Correction

Is there a Business case for Power Factor Correction?

With all the activity in Queensland in the provision of Power Factor Correction equipment over the last 12 months you would think it must have been a no-brainer that it was worth doing.
Yes there have been subsidies offered to eligible businesses and that still does not mean that there is a clear business case for installing Power Factor Correction.
However until recently it has been impossible to make a valid case because the amount you were going to pay for your power factor was not clear. How then could you compare the cost of power Factor Correction with any prospective increase in the Energy Bill you pay?

What will Power Factor cost?

On the 31st of October (2014) Energex released a copy of their regulatory proposal as they have submitted to the Energy Regulator. You can find a copy here:.
The proposal covers the operations of Energex for the period 2015 to 2020 and includes guidance of expected tariff changes over that time.
While there has been extensive fear mongering about power factor charges in the market place for the last 12 months or so there has been no hard data on what the costs would be.
Now, assuming the proposal is accepted by the regulator, we can see what the regime will be. The major change for business is that customers on the 8000, 8100, and 8300 Standard Asset Customer Demand group of tariff’s will move from demand being measured and calculated in kW to kVA.

For a customer on tariff 8100 for example, the Energex part of the demand charge is increasing from $19.845/kW/month to $19.91/kVA/month. There is also a Power Link component in addition (The transmission part of the network charge). This change in dollars per unit though is likely to be dwarfed by the change from kW to kVA as the unit of measurement.

That is if your power factor is 0.9, which is quite common and almost nobody runs at unity, then you can expect the Demand part of your bill to go up by 10% in addition to the change in $/kVA/Month.
If it is closer to 0.8 (or 80%) which is not unheard of then the Demand part will go up by around 20%. For many customers we see on this tariff the demand component of their bill can easily be 40% of the bill.
If you have a significant power bill for your organisation and the demand component is 40% and that goes up by 20% then your bill is going to go up by 8% a month in one hit.

How do I find out my kVA before I get a bill shock?

The kVA demand figure will not yet be on your bill if you are on tariff’s 8000, 8100, or 8300. In fact your Power factor at full demand will not be there either.
You can however request your interval data from your Energy Retailer and this should include a kVA column and a Power Factor column.
Ensure that the data you receive includes part of the year when you are at peak consumption of Energy and find the highest value for kVA.
Easiest way to do that is to open it in Excel and sort on the kVA column in descending order. The highest kVA each month is what the demand is measured at for billing purposes and check the Power Factor at full load.

Calculating the Return on Power factor Correction.

For a quick back of the envelope calculation then a good quality PFC system currently costs approximately $150 per kVAr (2014 cost in Australia).

Now for the magic. If you are a large user of power (on an 8300 tariff for example) you will soon be paying in the region of $24 per kVA of Demand.

At a Demand figure of 450 kVA at 0.88 PF that is $10,800 per month, but if your bring your Power factor back to 1 your demand should be 396 kVA or $9,504 per month.

For a PFC installation costing around $32,000 required to fix this 0.88 PF; using a straight line method and ignoring the time value of money because the time is so short, you can see that we get a 2.06 years to payback the initial capital expenditure. That’s like getting a 35% return on your investment and that is without any of the incentives available from the utility if you are in the right area.

Is there a Business case for Power Factor Correction?

In many cases YES without a doubt. 

What is your power factor and what is it costing you? About time you found out, wouldn’t you say?


So there is a good case for looking at your Power Factor and before installing a Power Factor Correction system there are some important considerations.
Such as potentially eliminating the cause instead of installing PFC and complicating issues such as Frequency Harmonics that can be amplified by PFC and potentially damage a PFC unit and other equipment.

Call Hexeis for a Professional assessment of your Power Factor needs on 1300 439 347