A new, utility-interactive hybrid distributed generation scheme,with reactive power compensation feature, is presented. The basic objective is to realize a reliable power supply for a remotely located critical load. Fuel cell (FC) stack and photovoltaic (PV) array are considered as energy sources. These sources can be operated independently or in conjunction as per the requirement. The control logic employed ensures maximum utilization of the PV array, resulting in optimum operational costs. Only one inverter is used to connect both the FC stack and the PV array to the utility. Apart from feeding active power into the grid, the system can also provide reactive power compensation. Active and reactive power can be independently controlled by controlling the inverter's power angle and modulation index, respectively. This provides more flexibility in control and operation. All the details of this work, including power and control circuits, MATLAB simulation results, and experimental results, are presented.