Why power factor tariff is imposed?

Answer: Since the efficiency of plant and equipment depends upon the power factor, therefore in order to increase the utility of plant and equipment to the maximum, a plant must be operated at the most economical power factor. That is why sometime consumer or penalized for poor power factor by improving the power factor tariff.

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The tariff imposed on consumption of reactive power is power factor tariff. If reactive power consumption is low then the power factor is high and hence lower cost, if reactive power consumption is high the power factor is low hence higher cost.

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