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A reactive power compensation scheme along with harmonic reduction technique for an unbalanced four-wire system has been addressed in this study. The proposed compensation scheme can mitigate a wider range of thyristor controlled reactor (TCR) injected harmonics and load harmonics up to specified range. The scheme is realised by using a combination of thyristor controlled delta (Δ)-connected and star (Y)-connected static VAr compensator (SVC). Each SVC consists of a TCR and a tuned-thyristor switched capacitor (t-TSC). The proposed SVC scheme can eliminate negative sequence current with source power factor improvement through Δ-SVC and zero sequence current caused by unbalanced load is removed by Y-SVC. For harmonic compensation, the tuned-TSC is used to filter harmonics generated by the non-linear load or due to TCR switching in SVC. An optimised switching function is also adopted in the proposed scheme to minimise TCR harmonic injection in the SVC which reduces the required filter size. The optimised switching angles are computed off-line using gravitational search algorithm and stored in microcontroller memory for on-line applications. The proposed scheme has been validated through proper simulations using MATLAB software backed by suitable experimental results on a practical system. [ABSTRACT FROM AUTHOR]