Induction motor accounts for more than half of the industrial load and are responsible for the poor power factor. The power factor of an induction motor varies with the load on the motor. Lightly loaded motor has a very poor power factor. Poor power factor results in reduced capacity of transformers, cables and other equipments and are also responsible for higher power losses because of increased current flow. They also cause additional voltage drop.
Motivation for power factor improvement:
Utilities usually encourage the consumers to improve the power factor of their installation by incorporating power factor based penalty/rebate in the power tariff structure.
Figure shows the Electricity Bill of a Hotel for the month of Dec 2016. The premises, which is fed from 11 kV, is having an average power factor of 0.63 (as can be seen in the picture) for which the consumer has to pay a penalty of 28,759 INR ( a hefty amount indeed, for sheer casual approach)