A low power factor is a burden on transmission company. Earlier, they used to adjust pwoer factor losses in transmission losses, however, since the inception of kVAh billing, the companies pay for the low power factor through their pockets.
In a thermal power plant coal is burnt to produce electricity. Now as we all know, AC electric power in MW = MVA (apparent power) * power factor. When a circuit has poor power factor, then one of the two components of apparent power known as reactive power (MVAr) increases, for the same MVA supplied. Reactive power cannot be utilised for our good or consumer cannot use the reactive power, since the reactive component of the current does not contribute to electromechanical energy conversion, and thus, is known as wattless current.
Thus it is very well understood that if you are not able to extract a good amount of the MVA and be able to convert the same into usable power, you as a generating station will need much more coal which will get burnt unnecessarily, which is undesirable. Also with poor power factor, the line currents increase, so does the line losses. Since the consumer pays for the MW and MWh consumed, so the payment collected will not be enough to pay for the coal purchased from the mines, so electricity rate will have to be increased. Hence we have the regulation of minimum 83.8% power factor for all consumers. Since the power system also needs to operate many electric drive motors that need reactive power for purpose of magnetisation, so we cannot have unity power factor all the time as per our wish. Hence there is a practical optimisation of 85% as power factor.
To maintain the power factor within 83.8 to 90%, the heavy consumers need to use power factor compensation equipments such as synchronous condenser, capacitor bank, SVCs etc to reduce the amount of reactive power being drawn by them, which helps in two ways mainly: It reduces consumption of coal per MVA supplied, that controls pollution It reduces line losses since improvement of power factor reduces line losses since there is reduction in line current.