Power factor measures how much of the current an AC system draws is doing real work: apparent power S in kVA relates to real power P in kW as S = P/PF. The current consequences are immediate — a 10 kW three-phase load at 400 V draws 18.04 A at PF 0.8 but only 14.43 A at unity, so the same useful power costs 25% more current when the power factor sags. That extra current occupies transformer and cable capacity and burns I²R losses without delivering anything.
Money follows the physics: many utilities bill commercial customers on kVA demand or levy a penalty when the power factor falls below a threshold, commonly 0.90 or 0.95. Correction means supplying the reactive power locally with capacitors instead of importing it — the bank size is Qc = P·(tan φ1 − tan φ2), so lifting a 100 kW load from 0.70 to 0.95 takes 69.1 kVAR, shrinks the apparent power from 142.9 to 105.3 kVA, cuts line current 26.3%, and — because losses scale with current squared — drops resistive losses about 45.7%.
Correction has limits worth respecting. Switching in more capacitance than the load needs drives the power factor leading, which can raise voltage and push reactive power back to the utility, so practical targets sit near 0.95–0.98 with switched or automatic banks for variable loads; and on harmonic-rich systems capacitors can resonate with system inductance, calling for detuned banks checked per IEEE 519.