The arrestor/capacitor combination is installed to provide surge protection for the generator stator winding. Suggest that you contact the generator manufacturer for specific recommendations. There are a couple of "usual" locations for the surge protection, namely -
- In the generator terminal compartment, if there is space available
- In the generator voltage transformer compartment, usually relatively close to the generator
Location closer to the machine is preferred, as this avoids the possibilty of voltage doubling due to reflected waves when there is an incoming surge.