Abstract: Pumped-storage power station has the auxiliary service function of phase modulation, which provides reliable supporting for stable operation of power grid. Firstly, in view of the current situation that no compensation analysis is made for phase modulation service of pumped-storage power station in electricity market environment, this paper designs a compensation mechanism for the phase modulation service with"two-part system"price of reactive power in order to objectively measure the quality of the phase modulation service of pumped-storage power station and balance the benefits between power grid enterprise and pumped-storage power station. Secondly, based on Stackelberg game theory, a compensation model of pumped-storage power station is constructed and the existence and uniqueness of Nash equilibrium solution are proved. Finally, simulation analysis of Liyang pumped-storage power station in Jiangsu Province of China is carried out to obtain the benefits of both sides of the game with the equilibrium solution. The example shows that the reactive power compensation cost of power grid enterprise is related to the type of phase modulation service. Through the draft of reactive power price, the benefits of both pumped-storage power station and power grid enterprise can be increased, and the pumped-storage power station can be encouraged to provide the phase modulation service. Also, suggestions on reactive power bidding and compensation mechanism of the phase modulation are given.