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As power system interconnections become more prevalent, there has been an increase in use of thyristor controlled shunt connected compensation devices for dynamic power compensation and enhancement of real power transmission capacity. In this paper, an enhancement technique of real power transfer capacity of transmission lines is presented. A static var compensator (SVC) is designed and applied to a simple power system for this purpose. Increase in power flow and improvement in bus voltage profile are observed after using the SVC. Stability analysis of the system after experiencing fault as well as consequent fault clearance by time domain analysis has also been performed and satisfactory results are obtained.