Abstract: Reactive power compensation technology in power systems is of great significance for ensuring power quality and supply reliability. Aiming at the problems of slow response and frequent switching in traditional compensation methods, a three-stage optimization method of "precise identification, optimized calculation, and dynamic adjustment" is proposed. Determine key compensation nodes through voltage sensitivity analysis, optimize compensation parameters with the goal of minimizing network loss using particle swarm optimization algorithm, design improved PID controller and adaptive threshold strategy to achieve dynamic adjustment. Engineering practice has shown that the optimized compensation technology increases the voltage qualification rate to 98.6%, reduces network loss by 17.3%, reduces equipment switching frequency to 8 times per day, and reduces harmonic distortion rate to 2.8%. All indicators are better than traditional methods and meet the preset goals, providing technical support for the operation of the power system.