High-temperature superconducting magnetic energy storage systems (HTS SMES) are an emerging technology with fast response and large power capacities which can address the challenges of growing power systems and ensure a reliable power supply. China Electric Power Research Institute (CEPRI) has developed a kJ-range, 20 kW SMES using two state of art HTS conductors, BSCCO and YBCO tapes. This SMES system is used to compensate a power drop and a fluctuation in order to damp low frequency oscillations to increase stability of a power system. This paper presents an optimized design of the SMES system to achieve a maximum energy capacity. A voltage source converter using IGBTs is built and can be used to control the power flow between the SMES system and external circuits. A control system using a digital signal processor (DSP) and micro-programmed control unit (MCU) is constructed. SVPWM pulse modulation is used as a control strategy. The whole system was experimentally tested for compensation of power fluctuation within milliseconds in a dynamic power system simulation laboratory. The result validates the design and control circuit, and more importantly, the application capability of SMES systems in a power grid.