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This paper proposes a grid-connected Permanent Magnet Synchronous Generator (PMSG) driven by the wind turbine with harmonics, reactive power and unbalances compensation capability. The proposed wind energy conversion system consists of a PMSG coupled to a diode-bridge rectifier, a DC-to-DC converter and a three-phase four-wire inverter. The diode-bridge rectifier is used as an AC-DC converter. The DC-DC converter is used to achieve maximum Power Point Tracking (MPPT) for the wind turbine. The grid-side converter is controlled to supply extracted power from wind energy to the grid and to the loads as well as to compensate the harmonics, the reactive power and unbalances, so that the supply currents will be sinusoidal, balanced, and in phase with the supply voltages. A nonlinear control technique is proposed for the inverter. The effectiveness of the proposed variable speed wind energy conversion system is proved by simulation.