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This paper proposes a voltage-controlled voltage source inverter (VCVSI) using a coated conductor (CC) as a decoupling inductor. Up to the present, the topologies to protect the power system from a short circuit effectively and to improve power quality simultaneously have been rarely developed. In the proposed topology, a decoupling inductor, which is essential component for a VCVSI operation, was designed with a YBCO CC and was integrated into a VCVSI. However, to determine the optimal CC specification, it is necessary to consider design parameters such as fault current, active power flow from the system and reactive power required by the decoupling inductor. With the optimal CC specification, the proposed system can perform the fault current limiting operation for a short circuit. In addition, in the normal time, it can compensate for the reactive power that a non-linear load requires, as well as perform load voltage stabilization. Specifications for a test model are discussed and the fault current limiting and power conditioning operations are presented. By using computer simulations, we validate the analyses and discuss its multi-operation.