Supercapacitors are increasingly used as short term energy storage elements in distributed generation systems. The traditional approach in integrating them to the main system is the use of interfacing dc-dc converters which introduce additional costs and power losses. This paper therefore, presents a novel direct integration scheme for supercapacitors and thereby eliminates associated costs and power losses of interfacing converters. The idea is simply to replace ordinary capacitors of three-level flying-capacitor rectifiers with supercapacitors and operate them under variable voltage conditions. An analysis on the reduction of power losses by the proposed system is presented. Furthermore, supercapacitor sizing and implementation issues such as effects of the variable voltage operation and resistive behavior of supercapacitors at high frequencies are also discussed. Simulation results are presented to verify the efficacy of the proposed system in suppressing short term power fluctuations in wind generation system.