Improving system power factor can reduce reactive and active power losses for both industry and utilities through the addition of shunt capacitors. Raising power factor above 95 percent is a proven way of increasing the efficient use of electricity by utilities and end-users. Economic benefits for end-users result from reduced power bills, lower line and transformer losses, and improved voltage conditions, while utilities benefit from released system capacity. Most of the cost savings for end-users are obtained by eliminating the power factor penalty charges. This study evaluates the cost effectiveness of installing power factor correction capacitors in an industrial plant.