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The paper discusses the operating principles and control characteristics of a dynamic voltage restorer (DVR) that protects sensitive but unbalanced and/or distorted loads. The main aim of the DVR is to regulate the voltage at the load terminal irrespective of sag/swell, distortion, or unbalance in the supply voltage. In this paper, the DVR is operated in such a fashion that it does not supply or absorb any active power during the steady-state operation. Hence, a DC capacitor rather than a DC source can supply the voltage source inverter realizing the DVR. The proposed DVR operation is verified through extensive digital computer simulation studies.