The problem of supplying reactive voltamperes in a power system assumes greater importance as the size of the system increases. A method is presented for optimizing the supply of MVAr; using accurate system representation. When the system is represented accurately for analysis, it is found that series capacitors are more favourable for supplying MVAr than has been hitherto assumed. With this optimization, if the supply of MW and MVAr is planned simultaneously, considerable savings in the capital costs can be achieved by co—ordinating the power factor rating of generators with the use of compensating MVAr. The compensation introduced on this basis to optimize the capital costs of generators and capacitors will also improve the voltage and stability conditions in operation.