Massive transportation system is especially essential for city development nowadays. In contrast to traditional diesel railway, electrified railway is considered to be safer, cleaner and more efficient. The policies in “Revising the Long and Mid-Term Plan of the China’s Railway” and the construction plan of Macau light rail transit both signify the importance of electrified traction. The recently proposed co-phase traction power supply possesses numerous advantages such as higher transformer utilization and elimination of neutral sections compared to conventional one. In this thesis, a co-phase traction power supply with proposed hybrid power quality compensator (HPQC) compensation is being studied and investigated. Although co-phase traction power supply is more advantageous, its development is somehow limited by the high operation voltage and initial cost of the compensator. The proposed HPQC is composed of one back-to-back converter with a common DC link. Since locomotive loadings are mostly inductive, a capacitive coupled impedance design is adopted in proposed HPQC to reduce the compensator operation voltage when comparing with conventional railway power quality compensator (RPC). Reduction in operation voltage can effectively reduce the device ratings and the initial cost of the compensator. The operation voltage of proposed HQPC can be minimized when the parameters are properly designed. The design procedures of HPQC parameters are explored using vector diagrams and mathematical derivations. PSCAD simulation verifications are also provided based on real settings and parameters in real applications. The parameter design for minimum HPQC operation voltage is derived based on constant rated load power factor and capacity. However, locomotive loadings are rarely constant and are unpredictably changing dynamically. Full compensation for system power quality may be accomplished under such conditions by raising the HPQC operation voltage. The mathematical relationship between HPQC operation voltage and loading condition is being investigated. Moreover, the range of load conditions that full compensation can be provided under a specific HPQC operation voltage is also concerned. Given a specified HPQC operation voltage, the load condition limit which full compensation can be provided is studied. All theoretical studies concerned are supported by PSCAD simulations under realistic parameters and settings. Finally, the system performances of co-phase traction power supply system with proposed HPQC are verified experimentally. A scaled-down laboratory scale hardware prototype is designed and constructed. It is verified through experimental results that the operation voltage of proposed HPQC can be lower than that of conventional RPC while providing the same compensation current. The system performances of co-phase traction power supply system used proposed HPQC and conventional RPC are also similar. Reduction on operation voltage can effectively reduce the device ratings and thus the initial installation cost of the traction power supply system.