This　paper　makes　a　study　of　method　of　reactive　power　compensation　to　improve　the　efficiency　of　transmission　and　distribution　grid.　A　simulation　model　based　on　instantaneous　reactive　power　is　proposed　as　an　example　for　three-phase　unbalanced　power　grid　to　show　that　unbalanced　current　could　be　compensated　completely.　By　means　of　reactive　power　compensation　to　unbalanced　electric　power　grid,　line　loss　is　greatly　decreased　and　power　quality　is　improved,　which　has　practical　applications　and　reference　value　in　engineering.　©2010　IEEE.