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Power Factor Correction is a means of reducing the overall current needed to supply a particular load - that means less I^₂R losses to the load, potentially smaller cables, smaller transformers and smaller rating switchgear (or perhaps avoiding the need for larger ones).

In some cases utilities charge for the maximum MVA demand of the load so improved Power Factor closer to unity keeps the total kVA demand as low as possible, and hence lower electricity bills.

e.g. Consider a 22 kV system with a load that is drawing 1000 A at a Power Factor of 0.95 Lagging (i.e. it is an inductive load).

This represents an overall Apparent Power = 22 MVA load comprising 20.90 MW of Real Power (P) plus 6.87 Mvar of "wasted" Reactive Power (Q).

If we improve the Power Factor to 0.99 lagging by adding  some capacitor banks in parallel to the load, we still have the same Real Power 20.9 MW but the total Reactive Power has been reduced to 2.98 Mvar.
The total Apparent Power is now only 21.11 MVA and the total current drawn from the supply is reduced to 959.6 A
To achieve this improvement, some 25.6 uF of capacitance is needed to achieve this 4% reduction.

It is to note that the load itself is still 22 MVA at 0.95 Lagging, it is just the total supply to the combined load and capacitor banks that has changed.

If we wanted to achieve total unity Power Factor, we would achieve total demand as 20.9 MVA and just 950 A, i.e. total 5% reduction, but we would need total 45.18 uF of capacitance  i.e. to achieve that extra 1% reduction we need to almost double the amount of capacitance we have added - the "law of diminishing returns".

Note that it is possible to over-correct from 0.95 lagging to 0.99 leading by adding 64.7 uF as too much capacitance - it achieves the same 21.11 MVA total Apparent Power but at the expense of additional capacitance so it is generally wise to remain slightly less than unity Power Factor.

This can be seen Image Added

You can enter your own system details in the attached spreadsheet model.

Extra Notes: