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A poor power factor (due to large reactive loads) in a transmission system will reduce the voltage on local bus bars. Typically, especially for industrial facilities, there will be a large inductive component to the system loads, by installing shunt capacitors in close proximity to these loads the inductive component is effectively cancelled out, allowing the transmission lines to carry greater real power.

[Once the capacitors are charged the reactive power demand of the inductive load is fulfilled by the charge/discharge cycle of the capacitors rather than by long-distance transmission of reactive power].
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