The electricity industry is one of the few oligopoly markets around today. This exclusivity requires tight regulation when it comes to the actions and revenue of industry players. These regulations, coupled with network inefficiencies, have steered network tariffs towards a charge based on power rather than energy. Businesses across Australia are increasingly being incentivised financially to improve the power quality of their operations. Solgen Energy Group Executive General Manager for New Ventures Joe Coco talks about the need and expansion of power quality solutions. One of these technologies is Power Factor Correction (PFC); a device which focuses on reducing unnecessary power flow.
Most markets allow suppliers the liberty of creating their own shipping routes, which is not the case for the electricity industry. It is a restricted industry where the only way to transport electricity is through the poles and wires that make up the network. To top it off, these networks are operated and maintained by the Network Service Providers (NSPs), which have full control over the power supply to customers without competition.
Due to the oligopoly nature of the industry, it is highly regulated in order to ensure suitable market conditions for suppliers, distributors and consumers. Market rules are determined by the Australian Energy Market Commission and enforced by the Australian Energy Regulator. These rules include managing their venue for providers by applying a cap on their annual revenues. The cap is partially based on sunk costs; previous investments made by providers which cannot easily be liquidated, such as poles and wires.
Consumers and suppliers are tied together by the basic energy in = energy out balance, which means that any change in consumption patterns need to be incentivised by all involved parties. Price signals need to be a two-way communication where providers tell the end user when it is costliest to supply electricity, and end users would respond by changing their consumption behaviour to avoid these peak rates.
One way to achieve cost reflective price signals is to the charge electricity based on power rather than energy, as this is the deciding factor for network expansion. Inefficient use of electricity causes strain on the network; therefore sometimes a penalty for poor use is put in place. This way, the end user is incentivised to reduce their inefficient use of the network, and this is where power factor plays a major role.
Power factor can be seen as a measurement of how efficiently a business is using electricity. It is the ratio between supplied power [kVA] and energy used to do actual work [kW]. Power Factor Correction (PFC) units, a relatively small box in comparison to its influence, efficiently removes the unused power supply from the network which ensures that only useful power is bought. This in turn saves businesses money.
The conditions for PFC are simple. If the site experiences elevated unused power consumption and the customer is charged for this through a demand charge, PFC can contribute to significant financial benefits. Poor power factor is often associated with large engines, refrigerators, air conditions, furnaces, etc.
Machinery which can cause poor power factors are more common in certain industries, such as food processing. A recently completed solar power project which included Power Factor Correction was a wholesale supply and cold storage warehouse in Darwin, Northern Territory. The business used large machines which inefficiently consumed power supplied by the network which resulted in higher than necessary electricity bills. The network distributor in Northern Territory also issues penalties for poor power factor. A 175 kVAr Power Factor Correction unit along with the 400 kW solar photovoltaic system was installed to improve the power factor.
The market within the electricity industry is created by the industry regulators, so there is no way of saying, with certainty, what the industry will look like in a few years. What is clear though is that regulators are working towards creating a more transparent industry with cost reflective prices and a higher level of customer integration. Regulations that empower customers to take charge of their own electricity costs means the future looks bright for both solar power systems and power factor correction.