Where open electricity markets have been introduced, the supply of electrical energy
becomes competitive between the supply utilities. Although private distribution companies
are obligated to run a profitable and successful business, they are also committed to
maintain the quality of supply at a high level. Competition in an open electricity market
creates new opportunities for even better quality of supply of electricity.
One very important aspect of improving quality of supply is the control of power factor.
Low power factor means poor electrical efficiency. The lower the power factor, the
higher the apparent power drawn from the distribution network. This means that the
supply company must install larger generation capacity, larger size transmission lines
and cables, transformers and other distribution system devices, which otherwise would
not be necessary. This results in a much higher capital expenditures and operating costs
for the Electricity Supply Company, which in many cases is passed on to the consumer
in the form of higher tariff rates.
This is the main reason behind why the Electricity Supply Companies in modern
economies demand reduction of the reactive load in their networks via improvement of
the power factor. In most cases, special reactive current tariffs penalize consumers for
poor power factors.