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The optimization of reactive power compensation plays an important role in power system planning and designing. A mathematical model in the 10kV distribution network will be established in this paper. Its objective function is the cost of investment in equipment of reactive power compensation and active power loss of the system should be the least. The node voltages beyond limited and the generator reactive power output beyond limited will be expressed in the way of penalty function. In this paper, the improved particle swarm optimization (improved PSO) will be used to solve the problem of easily falling into local optimum if using PSO. Using the improved PSO can be more effective in searching the global optimal solution, the speed of reactive power optimization will be improved too. The algorithm can better adapt to solve the problem.