Guides · Faisalabad, Lahore, Punjab

Power Factor and Solar: Avoiding PF Penalties in Factories

Short answer

Power factor and solar interact in a way that surprises many factory owners: a solar plant cuts the active power (kWh) you buy from the grid, but not the reactive power (kVARh) your motors still draw, so the power factor your DISCO meter records can fall after solar is installed. Under NEPRA's tariff terms, consumers on two-part tariffs must keep an average power factor of at least 90%, and every point below that adds 2% to the month's fixed charges. The fix is planning: check your capacitor bank and its controller, and design the solar plant with power factor in mind.

This guide explains how low power factor is billed, why solar changes the reading, and what to do about it.

Power factor in plain words

A factory draws two kinds of current from the grid:

Together they make up apparent power (kVA). Power factor is the share of apparent power that is active:

Power factor = kW ÷ kVA

A power factor of 1.0 (or 100%) means all the current does useful work. A factory full of lightly loaded motors might run at 0.75 to 0.85 without correction. Low power factor means more current for the same work, which loads the DISCO's network, so the tariff penalises it.

Diagram

Power factor in a factory

Low PF

More current for the same work

Correction

Capacitor banks sized by an engineer

Rules shown are from LESCO; check your own DISCO's terms.

How DISCOs bill low power factor

NEPRA's terms and conditions of tariff for the ex-WAPDA distribution companies (we checked the version attached to the LESCO tariff decision of 23 June 2025) set three rules:

  1. Who: consumers billed on two-part tariffs, meaning those who pay a fixed charge per kW plus an energy charge per unit. In practice that is mainly industrial (B-2, B-3, B-4) and some commercial and bulk connections. Homes on single-part tariffs are not covered by this clause.
  2. The threshold: the average power factor at the supply point must not be below 90%.
  3. The penalty: for each 1% that the monthly average falls below 90%, fixed charges rise by 2%. Fixed charges are based on the maximum demand (MDI) for that month. Rules shown are from LESCO; FESCO, GEPCO and MEPCO apply NEPRA's tariff terms, so check your own bill.

The monthly power factor is worked out from your meter as kWh ÷ kVAh, or as kWh ÷ √(kWh² + kVARh²) where the meter records reactive units.

Note what the penalty multiplies: fixed charges, not your energy units. So the penalty grows with your MDI. If MDI is new to you, read what MDI means on your bill first, and our guide to reading your electricity bill.

Example arithmetic (round illustrative numbers, not current tariff rates):

Use your own bill's figures to repeat this.

Why solar can lower your measured power factor

A standard grid-tied solar inverter is normally set to deliver active power at a power factor close to 1. It supplies kW, but no kVAR. Your motors still need the same reactive power, and with the inverter not supplying it, it keeps coming from the grid (or from your capacitors).

So after solar, the meter sees less kWh but the same kVARh. Because power factor is kWh compared with kVAh, the measured figure drops.

Example arithmetic (illustrative only):

Before solarAfter solar
kWh imported from grid in the month100,00050,000 (solar supplied the rest on site)
kVARh imported from grid40,00040,000 (unchanged)
Measured power factor100,000 ÷ √(100,000² + 40,000²) ≈ 0.9350,000 ÷ √(50,000² + 40,000²) ≈ 0.78

The factory's machines are exactly the same. The power factor at the meter fell from about 93% to about 78% simply because solar took over half the active energy. At 78%, the illustrative surcharge would be 12 points x 2% = 24% of fixed charges.

Two details make this worse in some sites:

What happens to your capacitor bank

Most factories already have an automatic power factor correction (APFC) panel: a bank of capacitors switched in steps by a controller that watches a current transformer (CT). Solar changes what that controller sees.

Five ways to keep power factor above 90% with solar

1. Measure before you design

Log the factory's kW, kVAR and power factor for at least a week of normal production, alongside 12 months of bills. Our guide to the energy audit before industrial solar lists what to measure.

2. Review the APFC panel

Have an engineer check CT location, controller settings (target power factor, switching delay, step sizes), capacitor health and whether the bank is detuned. Many sites need extra kVAR steps or smaller steps for fine control at light load after solar.

3. Use the inverter's reactive power capability

Many commercial and industrial on-grid inverters, including models from Huawei and Sungrow, can be set to supply some reactive power or to run at a set power factor, often controlled by a plant controller or smart logger reading the grid meter. Two cautions:

4. Consider an active compensator for difficult sites

Where loads change quickly (welding, presses, cranes) or harmonics are high, a static var generator or active filter can correct power factor faster and more precisely than switched capacitors. It costs more, so it is usually justified only after measurement.

5. Design solar, capacitors and protection together

Power factor correction is part of the plant design, not an afterthought. It sits alongside correct breakers and surge protection; see our breakers and protection page and our guide to on-grid inverters for factories.

Does a battery help with power factor?

A battery energy storage system with a capable inverter can supply reactive power while it operates, but buying a battery only to correct power factor rarely makes sense. Capacitors or an active compensator are cheaper for that job. A battery is justified by peak shaving, backup or storing solar for self-use, and power factor support is a side benefit when the equipment allows it.

How Solar Works Pakistan handles power factor in industrial projects

Solar Works Pakistan is a solar EPC, engineering and trading company headquartered in Faisalabad, with industrial EPC, hybrid systems and BESS as our specialist areas. We have served 300+ customers, including 50+ industrial clients. Load analysis, feasibility and AutoCAD design are done in-house, and our own teams install and commission.

For factory projects, our engineers look at the power factor and capacitor bank as part of load analysis, explain whether solar is likely to lower your measured power factor, and include the correction approach in the design and BOQ. We will not ignore a penalty risk to make a quotation look cheaper. See our industrial and commercial solar page. Net billing rules for factories are covered in our net metering and net billing guide.

Get today's price or a free site survey

Send us 12 months of bills (with MDI and any power factor line) and a photo of your APFC panel's nameplate and controller.

We serve industrial, commercial and residential customers throughout Punjab, and site surveys are normally free. You can also contact us online.

Frequently asked questions

What is the power factor penalty in Pakistan?

Under NEPRA's tariff terms, consumers on two-part tariffs must keep an average power factor of at least 90%. For each 1% below that, fixed charges for the month rise by 2%. Check your DISCO's current tariff terms, as rules can be revised.

Why did my power factor drop after installing solar?

Solar supplies active power but usually no reactive power. Your meter then records fewer kWh but the same kVARh, so the ratio falls. Your machines have not changed; the measurement has.

Do homes pay a power factor penalty?

The NEPRA clause applies to consumers on two-part tariffs, which are mainly industrial and some commercial connections. Ordinary domestic connections on single-part tariffs are not covered by it.

Can my solar inverter correct power factor?

Many commercial on-grid inverters can be set to supply some reactive power, often through a plant controller. Supplying reactive power can reduce active output at full sun, and your DISCO's interconnection terms may apply, so this must be designed and checked.

Do I need a new capacitor bank after solar?

Not always, but it should be checked. The controller may need new settings, the CT may need to move, or extra or smaller steps may be needed to hold 90% at light grid load.

Can over-correction cause problems?

Yes. Switching in too many capacitors when solar supplies most of the load can push power factor to leading, raise voltage and stress equipment. A correctly set controller with suitable steps avoids this.

Is power factor the same as MDI?

No. MDI is the highest demand in kW recorded in the month and sets your fixed charges. Power factor is the ratio of active to apparent energy. The power factor penalty is applied as a percentage of those MDI-based fixed charges.

Sources

  1. NEPRA, LESCO tariff decision (adjustment/indexation FY 2025-26), 23 June 2025, Annex V terms and conditions of tariff
  2. NEPRA Appellate Board decision on a FESCO B-3 consumer's low power factor penalty (2016)
  3. FESCO, electricity tariff page (fixed charges billed on 25% of sanctioned load or actual MDI, whichever is higher)