In order to keep the generator voltage constant as the wind speed and load change, dynamic reactive power compensation is required. Recently a hybrid exciter has been proposed for the induction generator using a fixed capacitor bank and a battery fed inverter. The battery backed inverter is operated at a constant output voltage and frequency as a local, virtual grid. The hybrid exciter dynamically counteracts the mismatches in reactive or real power between the generator and the load at different speeds. It is essential to minimize the cost of the hybrid exciter so that to make the overall system more attractive for small and medium power applications. This study examines a hybrid exciter system comprising a fixed capacitor bank and a battery fed inverter for the standalone squirrel cage induction generator and proposes optimal sizing of the exciter with a view to reduce the VA rating of the battery and inverter over selected ranges of speed and load. The optimisation process is carried out using PSO, with the results verified through GA as well. © 2012 IEEE.