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AC is usually generated in a rotating generator and the sine wave just comes from it naturally. The best way one could briefly describe why AC voltage is a sine wave in an alternator is because of the motion of the conductor cutting through the magnetic field.
An electric voltage (and current) are generated when a coil of wire is moved inside a magnetic field. Depending on the direction of the field relative to the motion of the coil, different voltages are generated. If the field is uniform but the coil of wire is on a steadily rotating shaft, it first passes a part of the field going in one direction and later passes another part of the same field, but the coil is going in the opposite direction, both motions being at the same speed. The result is first a voltage in one direction and then the reverse. This output is regarded as an alternating current.
More details here: Electric motors and generators Physics animations and film clips: Physclips. AC waveforms : BASIC AC THEORY
When compared with DC, Alternating Current offered much better efficiency, since it could easily be transformed to higher voltages, with far less loss of power. The voltage of an alternating current can be changed by a transformer. A transformer is a device for stepping-up (or stepping-down) the voltage of an alternating electric signal. Without efficient transformers, the transmission and distribution of AC electric power over long distances would be impossible. The AC technology was soon accepted as the only feasible technology for generation, transmission and distribution of electrical energy, but in the recent years a new technology for a better environment has emerged: HVDC (High Voltage Direct Current)... ;-)
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