This document proposes a cascaded two-level inverter topology for static var compensation (STATCOM) applications. It consists of two standard two-level inverters connected through the open-windings of a transformer. By regulating the DC voltages of the inverters at different levels, a four-level output voltage is achieved. Simulation and experimental results validate the control strategy under balanced and unbalanced grid conditions. However, instability was observed when the reference current changed suddenly. Therefore, a dynamic model is developed and transfer functions are derived to analyze the system behavior under different operating conditions.