In this thesis, the neutral point potential drift/fluctuation of the three-level neutral point clamped inverter is analyzed and a novel control algorithm, the two-parameter PWM method is proposed to confine the neutral point potential variation to a very small range. The two-parameter PWM method provides superior neutral point potential control performance even with small DC bus capacitors. The method is based on PWM pulse pattern modification and requires no additional hardware. Detailed analytical models of the neutral point current and potential as a function of the modulation parameters are established and the neutral point potential behavior is thoroughly investigated. Based on the study, the deficiency of the known methods is illustrated and the two-parameter PWM method is developed and its superior performance demonstrated. The performance of the two-parameter PWM method is verified by means of computer simulations utilizing both the per-PWM-cycle average model and the detailed model of the inverter. The results are supported by laboratory experiments involving both an R-L load and an induction motor drive.