This paper details the design of a thyristor controlled three winding partial core resonant transformer specially designed for testing generator insulation. The tertiary winding of this transformer is closed through a Thyristor Controlled Reactor (TCR). Firing angle control of an anti- parallel connected pair of thyristors provides continuous variation of reactive power. Modelling of the three winding transformer in PSCAD/EMTDC reveals the design criteria and performance of the proposed scheme. Automatic control of thyristor valves will be achieved by sensing the reactive power in the primary winding, i.e. low voltage winding. The exact magnitude of the firing angle for the thyristors at which the primary winding supplies only real power for overcoming losses and attains almost unity power factor, will be determined by a PI controller. Thus, only the real component of current is required from the supply. Nearly all the reactive power of the iron core and TCR counterbalances the leading VArs produced by the generator insulation. Fine tuning of thyristor firing angles avoids any over or under compensation of the system. Consideration is also given to keeping total harmonic distortion (THD) and overall power quality on the high voltage side within standard limits.