At present many remote and Island communities rely solely on diesel powered generators to provide electricity. Diesel fuel is both expensive and polluting and the constant speed operation of the diesel engine is inefficient. In this thesis the use of renewable energy sources to help offset diesel fuel usage and an alternative way of running the diesel generator with the aim of reducing electrical energy costs is investigated. Diesel generators have to be sized to meet peak demand, in one or two diesel generator island grids, these generators will be running at a fraction of maximum output for most of the time. A new variable speed diesel generator allows for a reduction in fuel consumption at part load compared to constant speed operation. Combining the variable speed diesel generator with renewable generation should maximise the diesel fuel offsetting of the renewable source due to the increased efficiency at low loads. The stability issues of maintaining transient performance in a renewable variable speed hybrid system have been modelled and simulated. A control strategy has been developed and the use of energy storage as a buffer for any remaining stability problems has been explored. The control strategy has then been experimentally tested along with one of the possible energy storage solutions. An economic feasibility study has been performed on a case study community to validate the main aim of this research of reducing the cost of electrical energy in diesel generator grids.