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Although microgrids have the potential to solve several sticky problems that beset the present-day grid, indiscriminate application can cause serious problems. Thorough studies are needed on many aspects to identify the potential problems and to develop effective mitigation techniques. Microgrids can operate in parallel with the main grid or as an isolated system to support customers isolated from the grid. During parallel operations, the microgrid supplies only a fraction of the power demand of the grid. However, in islanded operations, the microgrid must continue to supply 100% of power to the customers. Both types of operations are studied to identify the solutions needed for islanded operation. Even load variations and small disturbances can create challenging situations in an islanded mode particularly when the microgrid includes a large percentage of wind power. The use of Static Synchronous Compensator (STATCOM) is investigated for stabilizing the microgrid voltage during short circuit faults.