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What is Power Factor correction and how MDI (Maximum Demand Indicator) penalty can be avoided

By on April 22, 2016

If you are an office owner or a shop owner and you get electricity on a commercial connection with load more than 20kW, you would have heard of power factor penalty and/or demand charges. Have you ever wondered what does power factor penalty mean or what are demand charges? Have you ever paid something called as MDI (or Maximum Demand Indicator) Penalty?  These are the terms that are used in commercial connections in various part of our country but very few people understand what they are. If you are looking to understand what these are and how can you avoid them then this article will surely help you understand the same.

What is Power Factor and Power Factor penalty?

Has it ever happened to you that you have ordered a cup of coffee and you got a cup that is three fourth filled with coffee and one fourth with froth? You paid for the whole cup of coffee but 75% of it was real coffee and 25% “coffee less” coffee or just froth.

If you buy a bottle of water you get a full bottle of water and you pay for full capacity of the bottle as there is no froth.

Similarly in electricity there are 2 kinds of loads: resistive loads (e.g lights, water heaters, coil heaters, etc) and inductive loads (e.g. anything which has a motor: ceiling fan, pump, air conditioners, refrigerators). Resistive load are like glass of water where you get what you asked for. But inductive load are like cup of coffee where current is used up to create a magnetic field which is like “froth” and is not really useful as it is not used for doing actual work. The ratio between the “actual work” that you get and the total energy supplied by the utility is called the power factor.

So in our above example with coffee “total coffee” is one full cup of coffee and what you actually got actually was 75% so your power factor is 0.75. Similarly if you have a motor which is 1 HP (horse power) which is 745 watts and you run it with 0.75 power factor, the energy that the utility has to supply is 1/0.75 = 1.33 HP (horse power). The 0.33 HP of energy is lost in creating the magnetic field in the motor.

If the power factor was 1 or close to 1 then 1 HP motor would have taken 1 HP power from the utility. Because it has to draw more energy from the utility there is penalty for it, which is called Power Factor Penalty. And formula for power factor is defined as:

                                                P.F = kW (kilo Watt)/kVA (kilo Volt Ampere)

How can you avoid Power Factor Penalty?

Power Factor efficiencies can be improved by switching over to efficient appliances. Appliances that give more output (W) per unit (VA) of energy used. So in above example you can always switch to a coffee maker that generates lesser froth. Similarly you can switch to appliance that generates lesser inductive load.

The other way to fix the problem is by installing Capacitor Banks (sold as Power Savers at many places). Capacitive load is opposite to inductive load and negates the inductive load when added in parallel. Power factor can be increased up to 1 or at least 0.99 by installing capacitor banks.

What is Demand Charge and MDI penalty?

In the above example if you were entitled only for 1 cup of coffee and if you were not satisfied with just ¾ th cup of actual coffee, you will have to ask for more coffee. And in case the coffee is rationed, you will have to pay more for an extra cup.

When you signup for commercial electricity connection from a utility, you have to specify the maximum “demand“ (in kVA) that you need. During the month if you exceed your maximum “demand” you have to pay penalty (or extra price) for the same. That is the MDI penalty that appears on electricity bills.

How can MDI penalty be avoided?

  1. If your power factor is less than 1 you can improve your output kW per KVA supplied by improving power factor as mentioned above. This ensures that you are not wasting any kVA that is supplied to you by your utility.
  2. If power factor is unity, then it means that the appliances that you have are using more kW or kVA that you have signed up for. To fix this you either need to switch to efficient appliances (using less kW) so that your total need matches demand, or if you feel that you have the most efficient appliances then you can request your utility to increase the maximum demand allotted to you.
  3. Another option of avoiding MDI penalty is by shifting your peak load to a time of day when your load is less. For eg. A Thermal Storage system can help you shift your air conditioning load from the daytime to nighttime. A thermal storage device is like a battery that stores thermal energy. This can be charged in the night and used in place of air conditioners during the day time.

Why do Power Factor and MDI not impact residential customers?

Residential customers are not charged on kVA but on kW, which means that they are charged for the “actual” energy used and not the “total” energy supplied (charged for actual amount of coffee and not the full cup). Thus the power factor and MDI do not impact residential customers. In case the utilities start charging them for “total” energy supplied then the residential customers will also have to worry about power factor and MDI.

About the Author:
Abhishek Jain is an Alumnus of IIT Bombay with almost 10 years of experience in corporate before starting Bijli Bachao in 2012. His passion for solving problems moved him towards Energy Sector and he is keen to learn about customer behavior towards Energy and find ways to influence the same towards Sustainability. .