What is reactive Power and how it is generated and what is its source?
An AC voltage source will provide real power to a resistor; the voltage is in phase with the current and this means "real watts" are produced by the resistor and you are billed for the energy usage.

Consider an appropriately sized capacitor (or inductor) that also draws the same current from that same AC voltage source. Now, the average power taken is zero and you are not billed by the energy provider. 

If you multiplied RMS values of voltage and current you get what is known as "apparent power" and for a resistor this is also the "real power" BUT, for a capacitor or inductor this is all reactive power. So you have three terms that are linked mathematically: -



But why does reactive power not get billed i.e. what is so special about the current that flows in a capacitor or inductor compared to a resistor?

Answer - using the capacitor as an example, Q=CV i.e. charge stored = capacitance x voltage. If you mathematically differentiate both sides you get: -

\$\dfrac{dQ}{dt} = C\dfrac{dV}{dt}\$ and rate of change of charge equals current

So the waveform of current in a capacitor "follows" the differential of the supply voltage. If supply voltage is a sinewave then current is a cosine wave i.e. (and here's the important bit) it is 90 degrees shifted forward and, if you were to calculate real power you would find, somewhere in the algebra, a cos(wt) multiplied by a sin(wt) and, there can be no escaping that this produces a waveform that has an average value of zero (go do trig!): -



You are billed on average power not peak power or (god forbid) RMS power or even reactive power.

Pretty graph stolen from here. Note that the power waveform is twice the frequency of the voltage or current. For a resistive load, V and I would be in phase and the power waveform would be wholly positive i.e. the blue waveform moves up as red and green become in phase.

See below for several scenarios of current phase displacement relative to voltage and what that means for the position of the power waveform: -