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Reactive power charges for businesses

Reactive power is a non-working element of an electricity supply that is necessary for equipment such as lifts, elevators, and air conditioning units. However, a high demand for reactive power indicates that a commercial property is not using power efficiently.

Reactive power charges are charged to businesses with half-hourly meters that consume too much reactive power.

This guide explains reactive charges for businesses and how to avoid them. Here’s what we cover:

• Active vs. reactive power
• What causes reactive power charges?
• Understanding the power factor
• Impact of reactive power on electricity bills
• Ways to reduce reactive power charges

Active vs. reactive power

Active power and reactive power are the two components of electrical power in AC (alternating current) systems used in British commercial properties.

These two types of power combine to form apparent power, which represents the total electrical demand placed on the grid.

Active power (kW)

Active power is the electrical power component that performs useful work, such as generating heat, lighting bulbs, or driving motors. All electrical devices rely on active power to function.

Business electricity bills are primarily based on business electricity prices per kWh of active power a business consumes.

Reactive power (kVAr)

Reactive power is the non-working component of electrical power that supports the magnetic fields used in motors and transformers but does not itself perform useful work.

Reactive power is essential for common devices such as air conditioning units, lifts, and elevators.

Apparent Power (kVA)

Apparent power is the combination of active and reactive power.

It is an important factor for local grid operators as it best represents the electrical demand of an individual property.

Apparent power is the measurement used to assess capacity and excess demand charges.

What causes reactive power charges?

Reactive power charges occur when commercial properties with half-hourly electricity meters draw large quantities of reactive power from the grid.

Reactive power demand typically arises from equipment that requires a magnetising current to operate. Here are the most common examples:

• Lifts
• Elevators
• Air conditioning units
• Refrigeration units
• Industrial pumps
• Conveyors
• Older fluorescent lighting

A business electricity connection that uses a large portion of its power for the above equipment is likely to incur reactive power charges.

Reactive power charges are included within Distribution Use of System (DUoS) charges, which are levied by the local grid operator and then passed on by a business energy supplier.

Reactive power charges apply when the ratio of reactive power to overall power (called the power factor) in an electrical system exceeds a certain threshold.

Understanding the power factor

The power factor measures how much of the electrical power in a system is converted into useful work output.

Power Factor (PF) = Active Power (kW) / Apparent Power (kVA)

A power factor of 1 (or 100%) represents an electrical system where all the power drawn by a connection is used as active power.

A power factor of less than 1 indicates that some of the power being used in the system is reactive power (non-working power).

To help illustrate power factor, here is an example of different power factor cases:

Implications of low power factor

A low power factor indicates that a property is putting unnecessary strain on the local grid by drawing large amounts of reactive power.

To discourage inefficient electrical systems, Distribution Network Operators penalise properties with a low power factor by levying reactive power charges.

Impact of reactive power on electricity bills

There are two key ways in which a low power factor increases business electricity bills. In this section, we’ll explain both, along with an example of how they are calculated.

Reactive power charges

In most regions, a reactive power charge applies when the power factor of your electricity demand falls below 0.95 in any half-hourly period.

A half-hourly electricity meter automatically measures and transmits reactive power data every 30 minutes, along with measurements of active power.

Reactive power charges are calculated based on the following:

• Excess reactive power (kVArh): Additional reactive power consumed in half-hour periods with a power factor below 0.95.
• Reactive power unit charge (pence/kVArh): A charge for each unit of excess reactive power, typically between 0.1 – 0.3 pence per kVArh.

Example of a Bill:

• Excess reactive power: 150,000 kVArh
• Reactive power unit charge: 0.25 p/kVArh
• Reactive power charge: £375

Demand charges

All businesses with half-hourly meters pay demand charges based on the maximum demand for apparent power, which incorporates both active and reactive power used by a business.

There are two types of demand-based charges:

• Capacity charges: A charge per kVA of guaranteed Maximum Import Capacity on a business electricity connection. This guaranteed import capacity includes both active and reactive power. Capacity charges are a form of business electricity standing charge.
• Excess demand charges: An additional charge applied in any month where the actual maximum demand of a business exceeds the Maximum Import Capacity.

Read our full guide to maximum demand charges for more information.

Improving the power factor of a commercial property by reducing reactive power lowers the Maximum Import Capacity required for a business electricity connection.

Ways to reduce reactive power charges

Reactive power charges are generally avoidable by following ‘best practice’ in the design of electrical installations.

Here we present four strategies to reduce or eliminate reactive power charges.

Power factor correction equipment

Power factor correction equipment consists of devices that minimise the reactive power demand of an electrical system.

The most common type is a capacitor bank, which is a series of capacitors contained within a metal enclosure. These capacitors generate reactive power locally, reducing the need to draw it from the local grid.

A capacitor bank can be integrated into an Energy Management System to generate the precise amount of reactive power required in real time.

Optimise equipment efficiency

The reactive power requirements for most businesses arise from equipment with large motors, such as lifts and elevators.

There are several ways to optimise this equipment to consume less reactive power:

• Replace outdated equipment with modern high-efficiency motors that consume less reactive power.
• Avoid running motors at less than 50% load, as they draw disproportionately high reactive power.
• Use variable frequency drives to adjust motor speed and optimise reactive power consumption.

Balancing electrical loads across phases

Highly energy-intensive properties are typically equipped with a three-phase power supply.

The most efficient way to use a three-phase power system is to distribute electrical loads evenly across all three phases. Unbalanced three-phase supplies have a higher proportion of reactive power.

Three-phase electrical systems can be rebalanced by reassigning single-phase loads (such as office equipment or lighting) to different phases.

A formal business energy audit is the best way to assess electrical load balancing.

Negotiate a cheaper tariff

Reactive power charges are levied by local grid operators, who charge energy suppliers for MPANs with poor power factors.

Business energy suppliers typically add a margin on top of reactive power charges before passing them on to their customers.

An effective and hassle-free way to reduce reactive power charges is to switch business energy suppliers to a cheaper tariff.

Explore the latest deals today using our business electricity comparison service.

Benefits of improving power factor

This section summarises the three key benefits of improving the power factor of commercial properties.

Reducing business electricity costs

Improving the power factor of commercial properties with half-hourly meters helps reduce electricity costs in two key ways:

• Eliminates reactive power charges – Increasing the power factor above the 0.95 threshold removes reactive power charges.
• Reduces demand charges – Minimising reactive power demand lowers the overall apparent demand of an electrical system, helping to reduce excess demand charges.

💡 At Business Energy Deals, we specialise in helping companies reduce their electricity costs. Find out how much we can save you today with our business energy comparison service.

Extends equipment lifespan

Minimising reactive power in an electrical system improves voltage stability, helping ensure that equipment operates reliably.

A poor power factor can cause overheating in transformers, motors, and cables, accelerating wear on electrical components.

Reduced carbon footprint

A poor power factor results in higher-than-necessary apparent power, meaning more electricity must be generated to meet the demand of a single property.

The British national grid relies heavily on gas-fired power stations to generate power, meaning that power supplies have a significant carbon footprint.

Regulatory framework governing reactive power charges

The regulatory framework for reactive power charges is designed to encourage efficient energy usage while ensuring that business charges are fair and reflect the costs incurred by Distribution Network Operators (DNOs).

Ofgem is responsible for implementing the regulatory framework for reactive power charges.

Reactive power charges are designed to financially incentivise the reduction of reactive power, while Ofgem’s annual review of these charges ensures they remain fair to businesses.

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