I'm all about saving money on electricity but what is this?
Here's the lowdown on power factor. Power factor is expressed as a percentage between apparent power (volt-amps) and true power (watts).
Apparent power is simply volts X amps. It is equal to watts in any DC circuit, and AC circuits that are not inductive. An incandescent light bulb is purely resistive, not inductive, as is an electric heater. An electric motor is probably the best example of an inductive load. More on this later.
Volt-amps (VA) determines wire size, transformer size, generator size, etc.
True power (watts) is what actually does the work. In a motor circuit, VA determines the wire size, but it is watts that turns the shaft. The harder the shaft is to turn, the more watts it consumes. Likewise, in a generator, the more watts it produces, the harder the shaft is to turn.
Lets look at a good-sized industrial building. Lets say the service is 1000 amps at 480 volts, 3 phase. This service is good for 831,000VA, or 831KVA. If the power factor is 100%, the service would also be good for 831KW. Lets say this building is always loaded to 100% of capacity. The power company loves it. They ran 1000 amp wires, and they get to bill 831KW.
In real life, most industrial buildings operate at 70-80% power factor. Lets say this building is 80%. The power company ran 1000 amp wires, but now can only bill for 665KW. (Power is always billed in KW, never KVA.) They have a poorer return on their investment. (831KVA X 80%PF = 665KW).
In a case like this, the bill comes in two parts, KW, and VAR. VAR = Volt Amps Reactive. To keep it ultra not technical, low power factor = high VARs. This is how the power company recoups its investment. They only bill VARs on big services, not houses.
Power factor is affected by 2 types of load. Reactive and capacitive. Reactive loads make for lower power factor, capacitive loads will increase power factor. A lot of industrial buildings have power factor correction capacitors. These can be always on, or switched. Their sole purpose is to raise power factor. This cuts back on the amount of VARs, thus lowering the bill.
Capacitors will have a great effect on volt-amps, but very little effect on watts. In a house, you pay only for watts, not volt-amps. It really isn't hard to see the snake-oilishness of these devices.