This paper describes the use of series capacitor in rating reduction of static compensator (STATCOM) for voltage regulation of three-phase self-excited induction generator (SEIG). A SEIG driven through a constant speed prime mover such as gasoline engine requires an appropriate combination of shunt and series capacitors to improve its voltage regulation under varying load conditions. Inclusion of fixed value of series capacitor provide additional VARs with increasing load to enhance the voltage regulation of the SEIG. However, the SEIG being a weak power supply system with limited kVA experiences large voltage dip with variable output power and fixed excitation in stand-alone applications. The problem of voltage dip arising from varying loads is reduced with use of STATCOM along with fixed excitation. The shunt excitation capacitor needs to supply the reactive power of demand of SEIG to generate rated voltage at no-load. In the present study the transient performance of series capacitor compensated SEIG-STATCOM system has been analyzed through simulation in MATLAB/Simulink environment. The simulation results have revealed that with inclusion of series capacitors along with STATCOM improves the voltage regulation of SEIG under varying loads. Moreover, the use of fixed value of series capacitor has resulted in significant reduction in the rating of STATCOM.