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In this paper, a dynamic hybrid var compensator (HVC) for distribution grid is proposed. The system is based on a combination of a small-capacity distribution static compensator (DSTATCOM) and multigroup large-capacity thyristor switched capacitor (TSC). The DSTATCOM is the continuous subsystem of HVC, and the TSCs are the discrete subsystem of HVC. A new hybrid control method based on expert decision has been proposed to make sure that the HVC has good performance. A two-level collaborative optimization arithmetic, which is used to decide the optimal capacity of each HVC, has been proposed in this paper. A dynamic energy-saving system based on HVCs has been developed for a melt factory in southern China; application results show that compared to traditional reactive power compensation systems, the proposed system can effectively correct power factor, support supply voltage, mitigate voltage flicker, and obtain good effect for energy saving with low cost. [ABSTRACT FROM AUTHOR]