The invention discloses a method of reducing network losses of a micro power grid. A reactive optimization model is established for the micro power grid, reactive compensation of a capacitor group in the micro power grid in the case of minimum active losses of a network is solved by an optimization algorithm, wherein the optimization algorithm comprises the following steps of: 1) generating an initialized group; 2) calculating a network loss value corresponding to each individual in the group, seeking the individual subjected to the minimum network loss, keeping the minimum network loss as an optimal value, and recording the position; and iterating and updating the positions of all individuals according to an updating formula, seeking the individual subjected to the minimum network loss, and keeping the minimum network loss as a new optimal value; and 3) comparing the new optimal value with the original optimal value, restoring the individual with the new optimal value to the position of previous iteration if the optimal value is updated, and outputting final optimization results after the iterative operation is finished. Compared with the prior art, the network losses of the micro power grid can be reduced, and the overall efficiency of utilization of electric energy can be improved. The selected optimization algorithm cannot be easily subjected to local optimization. Moreover, the number of equation parameters used in the iterative operation can be reduced, and the equation parameters used in the iterative operation can be adjusted conveniently and have stronger stability.