What is Reactive Power, and Why Does It Matter?
The ballad of FERC Order 904
The thing about electric current is that most of it is alternating current (AC)—which means that a 120-volt (V) outlet isn’t really 120V. It actually fluctuates from +170V to -170V and back, 60 times per second, which on a multimeterlooks like a steady 120V.1Effectively, voltage in most wires ticks like a clock.
Current does too—in the same wire. In an ideal world, voltage and current are perfectly synchronized, but loads like motors, transformers, switches, and advanced HVAC controllers pull voltage and current out of sync, leading to reactive power: electrical energy that bounces back and forth without doing anything useful. It’s wasted electricity, measured in volt-amperes reactive (VAR), but it still gets produced by electric generators. So, if you load up a grid with reactive power, you must either boost generator output to compensate or let your voltage drift out of whack. And most electrical systems malfunction if they get voltage more than 5% greater or less than their specified input.
For a variety of reasons, the proliferation of distributed solar and storage systems makes these problems worse,2 which requires grid operators like ISO-NE to call on external reactive power compensation systems, from giant flywheels to rapid-switching capacitor banks to a newfangled system called a STATCOM. These systems don’t generate any electricity, but they clear out VARs, and for that reason, ISO-NE paid out around $16M/year to keep them running.
…Until the Federal Energy Regulatory Commission told them to knock it off.
FERC Order 904, Briefly
Electricity isn’t some singular product to buy and sell—there are lots of electricity products, from wholesale electricity to capacity to renewable energy certifications to ancillary services: frequency regulation, generation reserves, “black start” capacity, and reactive power compensation. The core idea of paying for reactive power compensation started with the 1996 FERC Order 888. The idea back then was voltage compensation was something worth paying for, separately from every other electricity product.
But in FERC’s estimation, times have changed. In 2025, most generation systems (particularly wind systems) should be able to keep their reactive power under control.3 In fact, if a new system can’t meet a set reactive power threshold, then they aren’t even allowed to connect to the grid. So why, FERC asks, are transmission providers still paying for reactive power compensation? It’s like if the DMV mailed you five dollars for driving a car with a catalytic converter. That’s great, but if your car didn’t have one, it wouldn’t have passed inspection.
At this point, only three RTO/ISOs4 still pay for reactive power compensation systems to run: PJM Interconnection in the Mid-Atlantic-plus-Chicago area, NYISO in New York State, and ISO-NE. Again, that payment comes out to $16M per year across the whole system. It’s a marginal cost on-net, and ISO-NE argued to FERC that their system of paying a fixed rate per VAR managed has worked out pretty well.
But on the other side of that argument was…pretty much everyone else who commented.
The Core Takeaways
ISO-NE, naturally, wasn’t happy with this result. But the Feds are the Feds. So on 27 Feb 2025, ISO-NE released some very minor tweaks to their reactive power compensation system. If FERC bans them from paying for reactive power within a deviation threshold, ISO-NE will keep paying for reactive power outside that threshold. Same base rate, same eligibility criteria. Instead of paying $16M/year, they’ll pay out closer to $3-4M/year. No one is going out of business because of FERC Order 904. This is simply an L on a lot of income statements. It’s ultimately small potatoes, and even most of the folks on a relevant transmission committee simply didn’t care.
To the reader, the core takeaway is how complicated the grid really is. FERC Order 904 is a two-hundred-page document that required understanding what reactive power is. And understanding what reactive power is requires dusting off advanced trigonometry, up to and including imaginary numbers. And then you must remember that the hardware necessary to manage reactive power is complex, expensive, and evolving. Those systems still require steel and semiconductors and heavy manufacturing and business models to justify their expenses.
And maybe—potentially—FERC missed something.
In one meeting I logged into, someone said that reactive power compensation really matters during duck curve days. As behind-the-meter solar generation generates more and more power, the larger grid sees midday demand fall lower and lower. And sometimes, demand falls faster than generation can ramp down. And all of the sudden, the voltage on 345kV transmission lines starts creeping upwards, to a potential height of 357kV. This is still within a 5% threshold. This is, nominally, still fine.
But a recent audit by ISO-NE found that during these “light load” conditions, almost all of the grid failed their power quality benchmarks. Boston, particularly, wasn’t even close to spec. This will only get worse as behind-the-meter solar proliferates. And even more recently, the Spanish and Portuguese grids collapsed for reasons, by best recent estimates, related to power quality and inverter-based generation. But we have yet to get a proper report out if there.
FERC thinks fixing this isn’t worth a discrete payout. But will power quality remain a non-issue? Should we be sure this isn’t worth paying people to mitigate?
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If the peak voltage is 170V, then the root-mean square (RMS) voltage is 120. A √2 squeezes into the physics.
The big one is that solar and battery systems use inverters to convert power from DC to AC. Conventional generators use a big turbine to generate electricity, and the magnetic output of this building-size electromagnet can soak up or provide VARs without losing voltage. By contrast, an inverter can only compensate so much before hitting thermal limits on its circuitry.
The technical boundary is “0.95 leading or 0.95 lagging power factor.” Effectively, within this range, more than 95% of the power generated is real power.
Regional Transmission Operators / Independent System Operators. ISO-NE is technically both.