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A three-phase two-leg NPC inverter is presented for power quality compensator. Eight power switches instead of twelve power switches used in the conventional three-level inverter are adopted in the adopted inverter. The voltage stress of power semiconductors is equal to half dc bus voltage instead of full dc bus voltage in the conventional two-level inverter. In this paper, the proposed inverter is operated as a power quality compensator to supply the active power for the dc or ac load and to eliminate harmonics and reactive power drawn from the nonlinear loads. Therefore, the balanced and sinusoidal line currents are drawn from the ac system. To derive the necessary active power and maintain the constant dc bus voltage, a dc bus voltage control in the outer low-bandwidth control system is used. A carrier-based current control in the inner high-bandwidth control system is used to track the line current commands. The mathematical model of the proposed converter is derived and the control algorithm is provided. Simulation and Experiments based on a laboratory prototype are presented to verify the effectiveness of the proposed control scheme.