The performance of a system consisting of a three-phase self-excited inductiongenerator (SEIG) with static compensator (STATCOM) for feeding static resistive-inductive(R-L) and dynamic induction motor (IM) loads was investigated. The cost-effectiveSTATCOM providing stable operation was designed by connecting additional shuntcapacitance with the load. The STATCOM-controlled algorithm was realised by controllingthe source current using two control loops with proportional-integral (PI) controller: one forcontrolling the SEIG terminal voltage and the other for maintaining the DC bus voltage. TheSEIG-STATCOM performance was studied for two designs of STATCOM, namely costeffectiveSTATCOM and full-rating STATCOM. The cost-effective SEIG-STATCOMsystem with the proposed control scheme exhibited improved performance with respect tostarting time, voltage dip, generator current and total harmonic distortion under varioustransient conditions.