Optimal size and location of shunt capacitors in the distribution system plays a significant role in minimizing the energy loss and the cost of reactive power compensation. This paper presents a new efficient technique to find optimal size and location of shunt capacitors with the objective of minimizing cost due to energy loss and reactive power compensation of distribution system. A new Shark Smell Optimization (SSO) algorithm is proposed to solve the optimal capacitor placement problem satisfying the operating constraints. The SSO algorithm is a recently developed metaheuristic optimization algorithm conceptualized using the shark's hunting ability. It uses a momentum incorporated gradient search and a rotational movement based local search for optimization. To demonstrate the applicability of proposed method, it is tested on IEEE 34-bus and 118-bus radial distribution systems. The simulation results obtained are compared with previous methods reported in the literature and found to be encouraging. © 2016 Faculty of Engineering, Ain Shams University