In the simplest terms, power factor is the measure of how effectively your electrical equipment converts electric current (supplied by your power utility) into useful power output. In technical terms, it is the ratio of Active Power (also known as Working Power and measured in watts or kilowatts (W or kW)) to the Apparent Power (measured in volt amperes or kilovolt amperes (kVA)) of an electrical installation.
The Active Power consumed by an electrical device, is used to perform a useful power output such as heat, light, mechanical energy, etc.
Inductive devices (such as electric motors, transformers, welding units, lighting ballasts and static converters) also consume Reactive Power (measured in volt ampere reactive or kilovolt ampere reactive (VAr or kVAr)) in order to generate a magnetic field. This magnetic field does not perform any “useful” work, but is required in order for the device to work. The reactive current drawn by an electrical device lags 90 degrees behind the active current drawn by it.
The Apparent Power drawn by an electrical installation is the vectorial sum of the Active and the Reactive Power drawn by the installation.