What is Reactive Power Compensation?
Power systems and lines always have components like transformers, motors, electromagnets as part of load or transmission systems. Transmission line themselves have their own inductance and capacitance (along with small resistance) as part of line impedance. One may understand if inductive components are removed, the whole generation, transmission and distribution will come to a halt. These Inductive reactance components are inseparable part of any system. At the same time, reactive part of line impedance does not consume energy, but keeps accepting energy and returning it to source every half cycle, as a continuous process. This draws its own current, and causes drop in voltage over the length of a transmission line.
Consider the following typical simplest transmission line circuit.

There is voltage drop across the line from point A to point B, equal to
V = V1 – V2 = i (R + jX)
Or V1 – V2 ≈ i (jX) if R << X.
Z is the net impedance between points A and B from all sources (line self- and mutual inductances, capacitance to ground etc.). The drop V can be significant, and efforts are made to reduce this drop, or reduce the effect of reactance X as much as possible. This is the process “reactive power compensation”.
Reactive compensation may be defined as management of reactive power to improve the performance of an AC system. Reactive power is generated by almost every component of power system – generators, transmission lines, transformers, and load. The lower the reactive components, lower is the drop from A to B in the line as shown in figure above.
Reactive compensation involves addition of leading or lagging reactive load to a system to improve the power quality. Purpose is to allow maximum power transfer from generation through the transmission system, making full use of its capacity. It may involve addition of leading or lagging reactive power to compensate for excess reactive power in system. In simplest terms, reactive compensation is addition of reactive power devices, whether capacitive or inductive, to get a specific output. The specific output could be greater transmission capacity, enhanced stability, better voltage profile as also improved power factor.
How does reactive power compensation differ from power factor improvement?
The two terms look apparently synonymous, but power factor improvement implies that a lagging and low power factor has to be improved, which is done by adding leading reactive power. Reactive power compensation takes into account even the condition where receiving end voltage may be higher than sending end voltage. In such case, we have to add inductive reactance into the system to nullify, for example, a transmission line capacitance. Reactive compensation keeps on balancing reactive powers to maximize delivery of active power in a system.
Methods of reactive power compensation
In most cases, the compensation is capacitive. A system may use capacitors in parallel (shunt) to line, or it may be in series, incorporated in the transmission line circuit. Depending on application, the compensation may be done using passive devices, active electronic circuits or synchronous generators.
Following methods are used for reactive power compensation on transmission lines.
1- Series capacitors– Inserted between segments of line to make series circuit. This alters line impedance to counteract effect of line parameters to offer continuous correction irrespective of line current.

2- Shunt capacitors– These are connected across the line in the middle of its length or at suitable point. These compensate for inductive component of load current.

3- Shunt reactors – In the event of light load or no load, capacitive reactance of line causes load side voltage to be much higher than sending end voltage, i.e. voltage actually rises along the line. To compensate this effect, inductors are added across the line as an inductive load. This counters the capacitive effect, and keeps end voltage under control.

4- Synchronous compensators /synchronous condenser – A synchronous motor running without a mechanical load can absorb or generate reactive power by controlling its excitation. An automatic voltage regulator can make the motor over- or under-excited depending on load current.
5- Static VAR compensators– Capacitors and reactors can be made to switch on or off using thyristors through electronic circuits. These can be made to compensate for load power factor, or support the transmission line voltage.

The first three are passive compensation methods. Methods 4 and 5 involve active compensation. A combination of passive and active compensation will be effective in a large industrial system where power factor improvement is done at load points, and active compensation is used for overall system.