A VAR is a unit of measurement of reactive power. VARs occur when AC electric currents and voltage are not in phase. Current and voltage become out-of-phase due to certain loads that require reactive power, or VARs. Vars are produced by certain types of generators and can also be produced by other equipment such as capacitor banks, static VAR compensators (SVCs), and smart inverters located on the distribution system or at customer facilities.
A primary use of electricity is to drive electric motors. Electric motors create the mechanical energy of a spinning shaft by using electrons to create a magnetic field that causes the shaft to spin. The electricity that magnetizes the coils does no work and is reactive power. The portion of electric current that does work is called real power, which is measured in units of watts, kilowatts, etc.
The overall power that an electrical system must be designed to deliver is called apparent power, which includes both reactive power and real power. Power factor measures the relationship of real power to apparent power:
Power Factor = Real Power / Apparent Power
Historical electromechanical meters measure only real power, although electronic meters can now measure both. Consequently, utilities almost always bill only for real power, not apparent power. But the utility must install delivery facilities sized to carry both real and reactive power. Since customers that absorb high amounts of reactive power cause the utility to build bigger facilities without getting paid for it, utilities prefer that customers have power factors as close to 1.0 as possible.
For industrial customers, utilities will often measure the power factor at the meter and will bill industrial customers for power factor deviations outside of acceptable ranges. If these charges get too high, customers can install equipment on their side of the meter to better manage their power factor.