This paper presents a transfer capability enhancement process using VSC HVDC system which can control active power as well as reactive power. The transfer capability is constrained by stability like voltage stability as well as thermal rating of power system components. Transfer capability of the power system limited by these constraints may be enhanced by reactive power control ability and active power flow control ability of the VSC HVDC system. To enhance the transfer capability of the system using VSC HVDC, selection of the HVDC installation site is performed. In this work, power zones which consist of major power plants and their sinks are identified using power tracing and distribution factor. Alternative route of major AC transmission line in the power zone is identified as VSC HVDC system.