This article presents static and dynamic reactive power compensators together for a self-excited induction generator and synchronous generator based isolated hybrid power system. Reactive power is required for excitation of the induction machine and for load under steady-state and transient state operations in an isolated hybrid power system. For small perturbation of load reactive power and input wind power, the use of a dynamic compensator alone may give better voltage stability but at a high cost; in contrast, the static compensator reduces the cost on compromising with the voltage stability. The proper rating selection of both compensators used may give the optimum solution between the voltage stability as system performance and cost of compensation. The fixed costs and voltage profiles are compared for the different participations of the fixed capacitor bank and STATCOM. The interaction of the dynamic load model is also introduced to make the system more reliable and hence a new power balance equation is derived. A 10% step disturbance in the dynamic load model as well as wind power input is considered for the system study. Four different cases designed for unique participation of static and dynamic reactive power compensators are presented. The analytical comparison is based on cost, rating selection, and voltage stability under transient condition.