This paper investigates control and operation strategy of grid connected permanent magnet synchronous generator (PMSG) based direct drive variable speed wind turbine with a static synchronous compensator (STATCOM). The application of STATCOM enhances the system performance by improving the fault ride through capability of the wind turbine. Control strategies for generator side converter with maximum power extraction, grid side inverter and STATCOM controller are implemented in Matlab/Simpower. Extensive simulations have been conducted using supercapacitor energy storage system with STATCOM to enhance the steady state and dynamic performances of the wind energy system under grid faults or disturbances.