Devices such as electric motors, transformers and coiled circuit elements draw inductive reactive power from the grid during their operation due to the effect of magnetization. This causes the current to move out of sync with the phase, meaning the current lags. The processes performed to balance this effect, which reduces the efficiency of the system, are called compensation. The main purpose of compensation is to increase energy quality and minimize system losses by meeting the reactive power on-site.

The reactive power generated during the transmission of electrical energy is a type of power that does not do work but causes losses in transmission lines, transformers and other equipment. Loads such as motors, fluorescent lamps and transformers connected to the grid are inductive in character and draw reactive power. This leads to: Overloading on transmission lines, Energy losses, Voltage drops, Reduction in the capacity of transformers and cables. The transportation of reactive energy from the power plant to the consumer creates a serious economic burden on the system. Measurements show that an additional 75% to 100% of reactive energy is transported for the active energy carried. Therefore, reactive power should be compensated at the point closest to where the load is generated, for example, at the panel level.