Static synchronous compensator (STATCOM) based on three-level neutral point clamped (NPC) converter is presented. A simple equivalent circuit of three-level converter is analyzed to predict the deviation of node voltages, and the capacitor voltage imbalance mechanism of three-level NPC converter is analyzed. An optimization algorithm of space vector pulse width modulation (SVPWM) for capacitor voltage balance of three-level NPC converter is presented. This algorithm predicts the deviation of node voltages for different operation modes to develop an optimization algorithm to minimize the voltage deviation among different capacitors. This algorithm selects the best switch combinations during each switching cycle to reach node voltage balance. In addition, the three-segment switching sequence design is presented in order to reduce the switching losses. 1140 V 500 KVA STATCOM based on three-level NPC converter is built and applied. Experimental results verify the compensation performance of STATCOM based on three-level converter and indicate the validity of the optimization SVPWM algorithm for capacitor voltage balance.