Harmonics are generated by non-linear loads. Most of the electric loads today such as Variable frequency drives, chopper circuits, induction heaters, etc would fall under that category. Harmonics in the power supply leads to heat generation in electric equipment such as transformers and consequently reduce the capacity.
Thus a 100kVA transformer cannot be loaded to its full capacity if the load it is supplying is generating harmonics. Besides, high harmonics cause insulation ageing and reduce the life of the transformer.
The K-factor refers to the level of harmonics in a particular system (See article). The k-factor exists from 1 to 50. Thus, a transformer with no harmonics operating at the fundamental frequency is considered to be operating at k-factor of 1.
As the level of harmonics increases, the k factor too increases. The k-factor is calculated for loads which are connected to the transformer.
Based on the k-factor of the loads the transformer is selected. Thus a transformer with a k - rating of 4 will bigger in size over a transformer with k-rating of 1. It will have its windings made of thicker copper gauge. In k-rated transformers the thickness of the neutral conductor is double to prevent heating due to the flow of the triplen harmonics. The k-rated transformer also occupies more space.