This paper proposes static and dynamic VAR planning based on the reactive power margin for enhancing dynamic voltage stability of distribution networks with distributed wind generation. Firstly, the impact of high wind penetration on the static voltage stability of the system is analysed and then the effect of composite loads on system dynamics is presented through an accurate time-domain analysis. A new index, reactive power loadability (Q-loadability), is used to measure the vulnerability of the network to voltage collapse. Compensating devices are located using Q-loadability to increase the system voltage stability limit. Finally, a cost-effective combination of shunt capacitor bank and distribution static compensator (D-STATCOM) is determined through static and dynamic analyses to ensure voltage stability of the system after a sudden disturbance for different wind penetration levels. This study takes into account the induction motor dynamic characteristics which influence the transient voltage recovery phenomenon. The results show that the proposed approach can reduce the required sizes of compensating devices which, in turn, reduces costs. It also reduces power losses and improves the voltage regulation of the system. (C) 2013 Elsevier Ltd. All rights reserved.