This paper describes a simple control structure and power conditioning system for an indirect vector controlled stand-alone induction generator (IG) used to operate under variable speed. The required reactive power for the IG system is supplied by means of a capacitor bank and a voltage-source PWM converter. Using a capacitor bank to transfer the reactive power to the IG under the rated speed and no-load conditions starts the IG operation and reduces the PWM converter size. The vector control structure for the variable speed IG power conditioning system compensates for changes in the electrical three-phase and DC loads while considering the magnetizing curve of the IG. The vector control structure is developed to regulate the DC link voltage of the PWM converter and the IG output voltage. The experimental and simulated performance results of the IG power conditioning system at various speeds and loads are given and show that this proposed scheme can be used efficiently for a variable speed, wind energy conversion system.