This paper proposes a new scheme to generate reference voltage for a existing DSTATCOM operating in voltage control mode (VCM). The proposed method provides DSTAT-COM an energy conservation (EC) feature while enhancing its power quality (PQ) improvement capability without using any extra circuitry. With this scheme, power drawn by the load decreases which reduces the tariff, reduces heating losses in load, and increases their life. Also, it will reduce the utility power requirement, greenhouse gas production, and increases energy efficiency, all of them are utility benefits. As DSTATCOM is installed by end users, incentives can be obtained from the utility with this scheme. This scheme ensures that during nominal operation unity power factor (UPF) is achieved at load terminal, which is not possible in traditional method. Also, compensator injects lesser currents, therefore, reduces losses in feeder and inverter. Further, a saving in rating of DSTATCOM is achieved which increases its capacity to mitigate deep voltage sag. Simulation results are presented to demonstrate the efficacy of the proposed scheme. © 2013 IEEE.