It first calculates instantaneous values load current and voltage and take product of them to calculate instantaneous power. Its average value is calculated which is active power . ploss is considered because inverter has certain loss and that power should be drawn to maintain constant capacitor voltage. Then, active component of current is calculated which is subtracted from instantaneous current to obtain reactive as well as harmonics component of current. It is fed to hysteresis band current controller which generates gate signal for inverter. Inverter injects compensating current. In this way, reactive power and harmonics is compensated.