We have a compressor with 25 hp capacity and receiver rating is 500 liter capacity. There is lots of water being discharged from the compressor receiver every day, out of the drain.
Shall we have install 1000 liter capacity…? What could be the benefit I get.?, so asks PBU.

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A larger air tank will not reduce the water generated by the 25 HP driven pump, PBU. It will simply give you a larger capacity of pre-compressed air when the compressor stops, and more “storage” capacity for water for the compressor pump generated water.
If the pump is generating lots of water, that’s a function of how many times a day the compressor runs. Longer compressor runs mean higher operating temperatures on the compressor and higher air temperature entering the tank. The amount of water generated by compressing air is also affected by the ambient air humidity level. The higher the humidity, the more water vapor will be in the air, and the more water than condenses in the tank when the air cools.
You cannot stop the water generation.
In response, you do want as much of the free water in the tank drained at the tank. This will help reduce the amount of water farther along in the air lines.
If you are using a manual tank drain, drain it more often. I recommend that you consider an an electrical tank drain, on which you can turn up the frequency of draining and monitor the drain time to ensure that all free water is drained from the tank each time the drain cycles.
You can also install a water trap in the main before the line gets to the plant ring, if there is one, another step I recommend.
Compressors will always generate water. The volume of that water depends on the frequency of pump cycle, the duration of run time each cycle, the ambient temperature being drawn into the compressor intake, and the relative humidity of that air. Getting the water out of the compressed air before it gets to sensitive equipment is part of the normal compressed air preparation process.
Hope this helps. If you have any further questions, please post them below.