Let’s say you have 3 big circuits that you want to run. Each circuit needs a wire going out and a return wire coming back, so you’ve got a total of 6 wires.
Now let’s do the same thing with 3 phase. We take each individual circuit and we delay its sine wave by 120 degrees. Why? Because 3 sine waves that are 120 degrees apart add up to zero when you add them together. This means that if you tie all of the return wires from our three circuits together, it adds up to zero and there’s no current flowing through the wire. If there’s no current, then the wire isn’t doing anything and you don’t need it at all. In reality, the three individual circuits will never be perfectly balanced, and so the return won’t add up to zero, but it will be small. So instead of needing 6 wires like you do above, now you only need 3 big wires and one little one. You save a huge amount in wiring costs.
The power company will run 3 phase from the generators to the transmission lines and to the substations. From there, it varies. If you have a lot of houses that are relatively close together, they may run all 3 phases through that neighborhood. Maybe the first street gets phase A, the second street gets phase B, the third street gets phase C, and so on, splitting the 3 phases down each individual street. Less common, but still in use in a few areas, is that they’ll run all 3 phases through the entire area and each house gets 2 wires from the 3 phase. It’s easy to tell if you have this since instead of 120 and 240 volts in your house, you’ll have 120 and 208 instead.
If the houses are much less densely packed, the power company may split the 3 phases at the substation and run phase A off in one direction, phase B off in another, etc. You lose the benefit of being able to share the neutral return at that point, but sometimes they don’t have enough of a load to justify running all three phases to each area.
Large business buildings are often fed from 3 phase.
Now for power factor.
If you take a coil of wire and run current through it, the coil of wire forms a magnetic field and stores energy. Remove the current and the magnetic field collapses and the energy that was stored in the magnetic field gets converted back into electricity. So a coil of wire is a simple energy storage device. We call this an inductor.
Take two metal plates and put them close together, and they will also store energy, except they will store it in an electric field instead of a magnetic field. This is a simple capacitor.
These energy storage devices as a group are called “reactors”.
Because AC is alternating current and is a sine wave, it cycles constantly. This means that inductors and capacitors are constantly charging up and discharging. They don’t use energy like a light bulb does. All they do is temporarily store the energy and release it later. But, it takes current to charge them up, so it’s a greater load on the generator.
The energy that gets used for things like light bulbs is called watts. The energy that is used just to charge up reactors is called vars, for “volt-amp reactive”.
As it turns out, inductors charge up during the part of the AC cycle where capacitors discharge, and capacitors charge during the part where inductors discharge. This means that you can use one to balance out the other. Most homes are slightly inductive due to things like motors in clothes dryers, refrigerator compressors, etc. The power company switches capacitors on and off of the line at the substation to balance out the inductive vars from the homes. If you get it perfectly balanced, then the vars all add up to zero, and what happens is that the capacitors discharge their energy into the inductors and then later in the AC cycle the inductors discharge their energy back into the capacitors, and the vars basically just go back and forth and back and forth between the inductors and capacitors. Meanwhile, the generator only has to supply the watts. Since the generators don’t have to supply the vars, this makes the power system much more efficient.
How well balanced the vars are is called the power factor, and it ranges from 0 to 1. A power factor of 1 means that the vars are perfectly balanced. A power factor of 0 would be all vars and no watts.
Most people have heard of watts since that’s what the power company charges you for, and it’s what light bulbs are rated by (or used to be). The power company doesn’t charge you for vars, so most folks have never heard of those.
If you are a business or industrial customer, the power company will charge you for vars, and they charge out the wazoo for them, too. For this reason, industrial customers with lots of motors and such will usually add their own power factor correction capacitors on site to balance out their vars. For business and industrial customers, the “bend over and squeal like a piggy” charges don’t usually kick in until the power factor drops below some particular number, usually around 0.7 or so. Basically, the power company charges you a huge amount for vars just to force you to add your own power factor correction.
You sometimes see devices designed for home use that claim they will save you money with power factor correction. These devices are just capacitors. Since they are constantly in the circuit, they don’t properly balance out the vars, so they don’t actually work. But even if they did, the power company doesn’t charge home users for vars, so these devices can’t possibly save you money.