This paper presents a novel and optimized switching strategy and control approach for a three-level two-quadrant chopper in a three-level Neutral point clamped (NPC) voltage source inverter (VSI) superconducting magnetic energy storage (SMES). Using the proposed switching strategy, the voltage of the inverter capacitors in SMES can be independently controlled; also, the minimum power and switching losses as well as the proper convection - can be achieved using this same strategy. The simulation results indicate that when combined with a proportional-integral (PI) control approach the proposed switching strategy can be easily implemented in the power networks and can balance and stabilize the multi-level inverters' capacitor voltage level. The voltage variation of the capacitors in the steady state condition is less than (0.062%) which is 15 times better than the IEEE standard requirement (1%). To investigate the effectiveness and reliability of the proposed approach in stabilizing capacitor voltage. SMES performance using the presented approach is compared with that of SMES when the capacitors of the three-level inverter are replaced with equal and ideal voltage sources. This comparison is carried out from the power-quality point of view and it is shown that the proposed switching strategy with a PI controller is highly reliable. Considering that the Space Vector Pulse Width Modulation (SVPWM) is highly effective in decreasing low order harmonics (LOH), this article utilizes this type of modulation when it is combined with the most optimized switching strategy. In addition, this study proposes a new algorithm for SMES to compensate the voltage sag in the power networks. Simulation results show that the VSI SMES, when combined with the proposed algorithm, is able to compensate the voltage sag and phase voltage in less than one cycle, which is 5 times better than other voltage sag compensators. Crown Copyright (C) 2010 Published by Elsevier Ltd. All rights reserved.