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In this paper, a new reactive power spot price index (QSPI) has been suggested to determine the optimal location of static VAr compensator (SVC) in the power system. The proposed index has been computed at each bus based on the reactive power spot price under different loading conditions for the system intact and critical line outage contingency cases. The effectiveness of the proposed method has been tested on two practical Indian systems. The results show that the suggested method of SVC placement is effective in reducing the real and reactive power spot prices, generation cost, system real power loss, total wheeling charges, and enhancing the system loading margin during normal as well as critical contingency cases.