AC as in Alternating Current? It is generated by induction, the primary property of inductors (coils). Induction is the creation of electrical potential (voltage) by passing a conductor through a static magnetic field. Michael Faraday first documented the phenomenon, and the first patent for alternating current was granted to the criminally underrated Nikola Tesla. At the most basic level it works like this: There is a stator, which is essentially a hollow tube containing what's called a 'dipole', a curved permanent magnet that is shaped along the sides of the tube. There is a rotor, which can be as simple as a loop of wire inserted into the stator and fixed in place, but able to spin freely. When the rotor is spun mechanically, the magnetic field induces power in the rotor because the electrons in the rotor are passing through a constantly changing magnetic field. The power generated exits the assembly through slip-rings (conductive bearings). Modern AC generators are maximized to create the most possible power per revolution.. a typical generator at a power station is comprised of a stator using many, many computer-controlled coils instead of magnets and rotors made of extremely densely wound coils with very small space tolerances to maximize the field strength. These are almost always powered by high pressure steam, generated by coal, oil, natural gas, nuclear power, wind power or any other source that can boil water.