The wind power is known as the most promising future energy source to obtain the electricity Induction generator is a simple energy conversion unit in the wind power generation system but it consumes the reactive power from the interconnected power system. Switched capacitor banks are normally used to compensate the reactive power, which bring about the transient overvoltage. This paper proposes a method for compensating the reactive power with STATCOM. A detail simulation model for analyzing the interaction between the wind power system and the commercial power system was developed using EMTDC software. The developed simulation model can be effectively utilized to plan the reactive power compensation for newly designed wind power system.