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The paper presents a study of a power system consisting of wind turbines and diesel generation units. In the study, a direct drive modular permanent magnet generator is used for the wind turbine and a normal permanent magnet generator is used for the diesel generation unit. Both types of generation units are connected to the load via power electronic converters and are operated in variable speed mode. The variable speed operation of wind power conversion system maximizes the wind energy capture, while the variable speed diesel unit balances the system load demand with a reduced fuel consumption. The system configuration and principles are presented. The simulation models are developed for the system performance study. The operation schemes and the system characteristics are discussed.