Self-Excited Induction Generator (SEIG) offers many advantages such as low cost, simplicity, robust construction, self-protection against faults and maintenance free in today's renewable energy industry. However, the SEIG demands an external supply of reactive power to maintain the constant terminal voltage under the varying loading conditions, which limits the application of SEIG as a standalone power generator. The regulation of speed and voltage does not result in a satisfactory improvement although several studies have been emphasized on this topic in the past. To improve the performance of the SEIG system in isolated areas and to regulate the terminal voltage STATic COMpensator (STATCOM) has been modelled and developed in this dissertation. The STATCOM consists of AC inductors, a DC bus capacitor and solid-state self-commutating devices. The ratings of these components are quite important for designing and controlling of STATCOM to maintain the constant terminal voltage. The proposed generating system is modelled and simulated in MATLAB along with Simulink and sim power system block set toolboxes. The simulated results are presented to demonstrate the capability of an isolated power generating system for feeding three-phase resistive loads.