What is power factor and losses?

In all industrial electrical distribution systems, the major loads are resistive and inductive. Resistive loads are incandescent lighting and resistance heating.
At low power factor, the current is high which gives rise to high copper losses in the system and therefore the efficiency of the system is reduced.

Typical inductive loads are AC motors, induction furnaces, transformers and ballast type lighting. Inductive loads require two kinds of power: a) active (or working) power to perform the work and b) reactive power to create and maintain electro-magnetic fields.
Active power is measured in KW (Kilo Watts). Reactive power is measured in KVAr (Kilo Volt Ampere Reactive).

The vector sum of Reactive power (KVAR) and Active power (KW) is called the apparent power or KVA and it reflects actual electrical load on distribution system.

The ratio of KW to KVA is called the power factor, which is always less than or equal to unity. Theoretically, when electric utilities supply power, if all loads have unity power factor, maximum power can be transferred for the same distribution system capacity. However, as the loads are inductive in nature, with power factor ranging from 0.2 to 0.9, the electrical distribution network is stressed for capacity at low factors.