The feasibility study of UPFC application in 220 kV Shanghai Grid is conducted based on characteristic and practical operation of Shanghai megacity grid. The reasonable location scheme of the UPFC demonstration project is determined, and main electrical connection, parameters of the main equipment and control strategy of 220 kV Yunzaobang station UPFC demonstration project are proposed. Based on the real time close-loop simulation platform, the influence of installing UPFC on Shanghai power grid is studied. The simulation results show that the demonstration project of UPFC has multiple application effects in terms of enhancement of power grid transfer capability, improvement of grid voltage stability performance and contribution to local balance of partitioned reactive power. This work is supported by National High-tech R & D Program of China (863 Program) (No. 2012AA050401).