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In this paper, a wind energy conversion system using a Permanent Magnet Synchronous Generator (PMSG) is designed and studied. The output power of the PMSG is supplied to the grid through a switch-mode rectifier followed by a three-phase inverter. The inverter operates as a shunt active power filter to compensate the harmonics, the reactive power, and the unbalance as well as to supply power from PMSG to the grid/load. A novel nonlinear control strategy for the inverter, based on Maximum Power Point Tracking (MPPT) and indirect PQ control is proposed. The control algorithm can be easily implemented in real-time applications, and deals with highly unbalance load and distorted source voltage. The proposed control system avoids the use of high-pass filter that would reduce its steady-state and dynamic performance. A positive sequence detection of source voltage and load current is proposed. The inverter is controlled to achieve balanced sinusoidal grid currents with unity power factor in a large speed range. The control system is simulated using the SimPower blockset of Matlab/Simulink, for a wide variation of the wind speed.