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Reactive loads such as inductors and capacitors dissipate zero power, yet the fact that they drop voltage (Links to an external site.)Links to an external site.  and draw current gives the deceptive impression that they actually do  dissipate power. This “phantom power” is called reactive power, and it  is measured in a unit called Volt-Amps-Reactive (VAR), rather than  watts. The actual amount of power being used, or dissipated, in a  circuit is called true power. The combination of reactive power and true  power is called apparent power, and it is the product of a circuit’s  voltage and current, without reference to phase angle (fig. 1). Although  it is considered unused power, reactive power is necessary for the  stability and reliability of electrical systems.
Power system components are designed to operate within ±5% of the  nominal voltages. Fluctuations in voltage levels lead to malfunctioning  of the various appliances. High voltage damages the insulation of  windings where as low voltage causes poor performance of the various  equipment like low illumination of blubs and overheating of induction  motors.
If the power demand is more than that supplied by transmitting lines,  current drawn from supply lines increases to a higher level, which may  cause voltage to decrease drastically at the receiving end. If this low  voltage is decreased further, it leads to the tripping of generator  units, overheating of motors, and possibly other equipment failures.
To overcome this, reactive power should be supplied to the load by  putting reactive inductors or reactors in transmission lines. Capacity  of these reactors depends on amount of apparent power to be supplied.
Transformers, motors, generators and other electrical devices require  reactive power to produce magnetic flux. This is because generation of  magnetic flux is necessary for these devices to do useful work. Reactive  power (fig. 2), indicated by red color, helps to create magnetic field  in motors but it leads to decrease in the power factor. This is why a  capacitor is placed to compensate the inductive reactive power by  supplying capacitive reactive power.
Most of the equipment connected to the electric supply systems  consume or produce apparent power but not all these control the voltage  levels. Power plant generators produces both active and reactive power  whereas capacitors inserts the reactive power to maintain the voltage  levels.

Figure 1.

Figure 2.
Hawaiian Electric Company (HECO) uses power substations (fig.3)  through transformers and voltage regulators. From what I understand  these banks of installed capacitors and inductors control reactive power  compensation to provide desirable reactive power consumption and  generation levels at the high voltage winding buses of the transformers.  Although I recognized the existence of these power substations prior to  this course I was unaware of their actual duty in the power  distribution process.

Figure 3.
Reference
All About Circuits, (n.d.). True, Reactive, and Apparent Power.  Retrieved from  https://www.allaboutcircuits.com/textbook/alternating-current/chpt-11/true-reactive-and-apparent-power/
El-Sharkawi, M. A., (2013). Electric energy: An introduction. Boca Raton: CRC Press, Taylor & Francis Group
Hawaiian Electric, (2004). Harmonics Part 2. Retrieved from  https://www.hawaiianelectric.com/Documents/for_business/power_quality/advanced_topics.pdf