Analysis of Financial Penalties for Low Power Factor in Distribution Systems with High Penetration of Photovoltaics

Several countries have encouraged the installation of photovoltaic (PV) systems in urban areas to contribute to the decarbonization goals of the electric power system. At the same time, consumers have adopted PV systems to reduce their electricity bills. While grid-following PV inverters offset active power demand, they can decrease the power factor at the point of interconnection with the grid, subsequently leading to financial penalties imposed by distribution utilities. Additionally, utilities must maintain power factor values above a predefined threshold to maintain acceptable levels of power losses at the transmission level. This paper examines low power factor penalty schemes for distribution utilities and consumers with PV systems. In such an analysis, an optimization approach is used to minimize the costs of penalties associated with low power factor during a consumer's billing period. This approach makes it possible to reduce the number of low power factor penalties, thus reducing the amount of electricity bills to be paid by consumers. The decision variable in this context is the power factor of the PV inverters. A case study is presented that considers the financial penalties in a city in the metropolitan area of Sao Paulo, Brazil, with various levels of PV penetration in the distribution system. The results show that while the penalties for consumers are low, distribution utilities would incur more significant penalties or require additional investments to maintain the power factor at the values imposed by electric transmission companies. This analysis aims to help regulatory agencies evaluate penalty schemes to reduce electrical losses in the distribution system.