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A hybrid excitation system is presented, consisting of a capacitor bank with a small-scale active power filter (APF), to regulate the output voltage of the stand-alone induction generator (IG) by controlling its reactive current component and to filter the harmonic currents generated by a nonlinear diode rectifier load. A deadbeat current control structure for pulse-width modulation APF connected to a stand-alone IG working with variable speed and different types of loads is proposed to enhance the operating performance of the stand-alone IG. Sensorless control of the IG, meaning current vector control without voltage sensor and mechanical shaft sensor, is considered and the fixed command control for the IG line-to-line voltage is achieved with high accuracy. In the proposed system a new design of phase-locked-loop circuit is used to determine the stator voltage vector position of the IG. A 2.2 kW laboratory prototype has been built to confirm the feasibility of the proposed method. The measurement results validate the proposed power generating system with the deadbeat current controller as a good application for the IG to reduce the total system cost.