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A novel current-detection algorithm based on the time-domain approach for three-phase shunt active power filters (APFs) to eliminate harmonics, and/or correct power factor, and/or balance asymmetrical loads is analyzed in this paper. A basic overview and evaluation of the performance of existing current-detection algorithms for active power filters are presented. According to different complicated power quality issues and various compensation purposes, a novel current-detection algorithm is then proposed. Comparing with existing algorithms, this algorithm has shorter response time delay and clearer physical meaning. Different compensating current references can, thus, be accurately and easily obtained by adopting the proposed algorithm. It ensures that the shunt APF can very well achieve different compensation purposes. Moreover, it is very easy to implement this algorithm in a digital signal processor (DSP). Simulation results obtained with MATLAB and testing results on an experimental shunt APF are presented to validate the proposed algorithm.