One volt at one ampere is usually calculated as one watt of power. But this is only a theoretical concept. In practice, power can run through a circuit and perform no real work, such as in a short-circuit. Or there may be losses on the circuit due to bleed or other factors, or a resistance factor greater or less than one ohm. To distinguish between watts, which represent real capacity do work, and volt-amperes, which merely indicate the presence of current, a ratio called power factor is used. The power factor represents the ratio between actual work done and the potential to perform real work, usually expressed as a percentage of total current throughput.

Power factor only applies to alternating current (AC). Direct current always has a power factor of 100%.

Loss factor is an expression of the average power factor over a given period of time, and is used in the energy industry to express the losses in transmission and distribution from heat, incomplete combustion of fuels and other inefficiencies.

Standby loss factor has an entirely different meaning. It too is a ratio between actual and potential energy consumed, but it refers to the loss of energy that results from keeping a device on standby service without actually using it. Standby loss factor is frequently used with devices such as hot water tanks which typically only need energy for short periods. A device's standby loss factor expresses the typical expected losses it will incur from remaining in standby mode. This factor is represented as a fraction or percentage of the average total energy they consume.

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