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A three-phase voltage-source inverter for a power quality compensator under the unbalanced mains and nonlinear loads is proposed to provide balanced three-phase source current and improve input power factor. The proposed converter is based on the conventional three-phase voltage-source inverter with three additional ac power switches to achieve three-level pulsewidth modulation. The voltage stress of three ac power switches is clamped to half the dc-link voltage. The balanced reference mains currents are estimated using the dc-bus voltage and load currents. A proportional-integral voltage controller is used in the outer loop to compensate the switching losses of the voltage-source inverter. To perform the integrated power quality compensation, a hysteresis current control scheme is adopted to track the balanced line current command in phase with mains voltage. Three voltage levels are generated on the ac terminal of the proposed inverter. Computer simulation and experimental results are provided to verify the effectiveness of the proposed control scheme.