List all the equipment at an event, add up its power, and you get an impressive figure. On site, however, that figure is rarely reached: not all this equipment runs at the same time, and rarely at full power.
Back to basics
The sum of the power of all the equipment is the installed power. But a floodlight is not always at full intensity, a cooking appliance does not heat continuously, and some equipment is only used at certain times of the day.
The diversity factor reflects this reality. It is a number between 0 and 1: 1 if all the equipment on a line runs at full power at the same time, less otherwise. Multiply the installed power by this factor and you get the diversified power, the power you actually need to plan for.
For example, 10 floodlights of 1,000 W represent 10 × 1,000 W, or 10 kW installed. With a diversity factor of 0.8, the line counts for 10 kW × 0.8, or 8 kW diversified: 2 kW less to plan for on this line alone.
Why it matters
Without a diversity factor, you size for a situation that never happens: bigger sources, larger cable sizes, higher-rated protection devices. That is overcapacity, and therefore unnecessary equipment and energy.
Conversely, an overly optimistic diversity factor leaves you with a source that cannot keep up, or with protection devices that trip. The right factor cannot be guessed: it draws on field experience, according to the type of equipment and the way the event runs.
In the power assessment, it is applied line by line: each line of equipment gets its own factor. Equipment that runs continuously at full power keeps 1; a group used intermittently goes lower.
To sum up, installed power tells you what you plug in, diversified power tells you what actually runs at the same time. It is from the diversified power, converted into kVA with cos φ, that sources, cables and protection devices are sized.
You do not size for everything that is plugged in, but for what runs at the same time.