Reactive power affects power system operation in numerous ways:
i. Loads consume reactive power, so this must be provided by some source.
ii. The delivery system (transmission lines and transformers) consumes reactive power, so this must be provided by some source (even if the loads do not consume reactive power). Note however that all transmission lines do provide some reactive power from their shunt line charging which offsets their consumption of reactive power in their series line losses.
iii. The flow of reactive power from the supplies to the sinks causes additional heating of the lines and voltage drops in the network.
iv. The generation of reactive power can limit the generation of real power.
One primary dilemma with reactive power is that a sufficient quantity of it is needed to provide the loads and losses in the network, but having too much reactive power flowing around in the network causes excess heating and undesirable voltage drops. The normal answer to this dilemma is to provide reactive power sources exactly at the location where the reactive power is consumed. And, since strictly speaking it does not take any "fuel" to provide reactive power, it should be possible to distribute reactive power sources (such as capacitors) all around the network to avoid the problem of heating the conductors and causing voltage drops.
Unfortunately, this is not practical in the extreme since there are literally millions of lines and loads connected to the grid and so this would require millions of reactive power sources-all controlled to provide exactly the right amount of reactive power at the right time-every second of every day. The best we can do in most cases is work with some type of aggregation of load (say at the feeder leaving a substation) and at terminals of major lines and transformers. This also brings up the issue of the difference between power factor control (trying to exactly provide the right amount of reactive power needed to equal that which is consumed) and voltage control (trying to keep voltage levels at exactly the right level no matter how much reactive power it takes). Reactive power is both the problem and the solution to network voltage control.