Description of Nameplate-
The nameplate installed on a DG reads it KVA rating, KW,maximum current and power factor among other parameters. Our focus here is onlyon power factor and its effect on output KW. Most of DG manufacturers mention0.8 as rated power factor of DG. But itdoesn’t mean that DG must be operated at 0.8 power factor at all the time, ratherit is the minimum limit on power factor of the load which can be served by it without affecting its performance in the long run.  Also, as a DG cannot absorb reactive energy the power factor must stay in lagging region. So the power factor has to be kept between 0.8 and 1.0.
Consider the alternator capability curve below for referring to safe operational limits on DG.
The green part is the region ideal for the DG to operate; it is the window of 0.8 to 1.0 power factor. The yellow region represents the working conditions where DG will run on low efficiency but with no damaging effects. And the red area represents the load operation which will have damaging effects on the DG.
Even within the power factor window of 0.8 to 1.0, the efficiency of the diesel generator varies which is analyzed next.
Understanding the impact of power factor on DG-
All diesel generators have a rated KVA and a nameplate power factor. For a diesel generator of 500KVA and 0.8 power factor, the active power capacity is limited by 400KW. Also, the reactive power that can be supplied by it is 300KVAr. Now, to compare the efficiency at 0.8 and 1 power factor, consider exact same active load on the output sides of two diesel generators.
Consider two DGs of 500KVA, with DG1 supplying an active load of 400KW on 0.8 power factor and DG2 supplying 400KW on 1.0 power factor. The output will be 500KVA on DG1 and 400KVA on DG2. With constant single phase voltage of 240 volts at the terminal, the current flowing in the two DGs will be-
I1= 500000/ 240= 2083 amperes (also the maximum current limit)
I2= 400000/240= 1666 amperes
I1-I2= 417 amperes
As copper losses inside the alternator part of the DG are directly proportional to the square of the current flowing, the efficiency reduces at lower power factor.
As the losses of the alternator increases by decreasing the power factor, the engine part of the DG will have to produce more active power and so it will consume more diesel. 
Refer to the image below for the effect of power factor on DG’s efficiency, which is published by a leading manufacturer of diesel generator in India.
Also for power factor of 0.8 to 1.0, it is important to understand the role of automatic voltage control relay (AVR). AVR is responsible for maintaining the output voltage of the DG, for lower power factors, by producing higher excitation current to keep the voltage within acceptable limits. To compensate for extra current losses, generator will have to produce more KW at 0.8 pf than at 1.0 pf. But as it goes to leading pf region, current has to be induced in the magnetic coil for compensation. However this induced current has a limit and thus DG cannot supply a load of power factor more than 0.97 leading.  After this limit, AVR gets cut off and DG will be tripped on over-voltage.
As diesel generators do not handle the leading power factor loads very well, it is to be made sure that the load applied to them does not cross 1.0 power factor.
Considering the effects of current losses and risk involved with going into leading power factor region, it is advised to maintain the power factor from 0.95 to 0.97. 
Effects of Single phase non-linear loads-
The true power factor of an electrical distribution system is a multiple of two contributing factors, displacement power factor and distortion power factor. Displacement power factor is angular displacement between current and voltage waveforms; caused by inductive or capacitive loads. Distortion power factor arises due to harmonics present in the system and this cannot be compensated by adding shunt capacitors.
In an office space most of the loads consists of computers or laptops which are single phase non-linear loads. In such conditions, level of distortion in current is very high. Typical values of displacement and distortion power factor for a computer are 0.99 and 0.6. When connected to the grid, the effect is minimized due its rigidity but if a DG is supplying to such a load, adding shunt capacitors will make DG to absorb reactive energy. Which will make it trip, giving the impression of over load operation.
Adding capacitors as filters under such situation will reduce the distortion of the current waveform and will improve the power factor. Following table can be referred for relationship between current harmonics distortion and power factor which can be attained using shunt capacitors.
At Zenatix, we collect both power factor and KVA delivered by the DG on continuous basis. Also with the help of advanced metering devices, current harmonics can be measured and used to draw the right compensation measure. By the analysis provided by Zenatix, a client can keep a check on DG’s operational parameters and draw power at maximum efficiency without affecting its performance in the long term. As a unit of power produced by DG costs 15-20 rupees with a typical efficiency of 30-35%, improving the efficiency of alternator will result in significant reduction in diesel consumption per unit produced.
Below is the plot of data collected from two of Zenatix’s customers.
By the plot, it can be inferred that power factor of client-2 can be improved for obtaining better performance from diesel generator. According to Fig.2, an improvement of power factor from 0.87 to 0.96 will result in improvement of efficiency by 0.5% at 60% loading.
1. Alternator adaptability curve for DG under leading and lagging load.
2. Effect of power factor on the efficiency of diesel generator.
3. Power factor plot of 2 DG’s at Zenatix’s Customer side.
2 Power topic #6001 | Technical information from Cummins Power Generation
4 Power topic #6004 | Technical information from Cummins Power Generation
6 Harmonics and how they relate to power factor- by W.Mack Grady, The university of Texas at Austin, Austin, Texas 78712 AND Robert J.Gilleskie, San Diego Gas & Electric , San Diego, California, 92123