Most of current arc suppression coil compensation system works based on the magnitude of post-fault distributed capacitance. This system can not offer compensation before fault, so in power system with large distributed capacitance current, short circuit shock is inevitable. This paper proposes an automatic arc suppression coil compensation technology based on fixed-frequency signal injection, it can calculate system equivalent distributed capacitance accurately in normal operation status and then adjust arc suppression coil according to predetermined compensation degree. This system can offer compensation before the occurrence of single-phase ground fault, and possesses preferable compensation effect for distribution system with flexible operation manner and variable distributed capacitance. This method can also calculate insulation resistor to monitor the insulation status of power system. Laboratory simulation test and field test results indicate that arc suppression coil compensation system based on fixed-frequency signal injection method can offer ideal compensation effect for distribution system.