In this paper is a combination of two different sources i.e. self excited induction generator based micro hydro system and a PV system form a micro-grid to feed power to a time varying local load in isolated mode. A 22 KW excited induction generator generates power from a constant power micro-hydro system. A PV array with a Battery Energy Storage System is connected to the DC side of a STATCOM which is employed to stabilize the voltage and frequency of the micro grid system. The SEIG being a constant power source is not capable of providing all the load demand during different loading conditions, which will give rise to voltage and frequency fluctuations and at worst conditions cause excitation failure in the SEIG. A STATCOM is employed in the micro grid system which supplies the required power to the load for continuity of power supply and to maintain the power quality of the system. Various types of load are taken into account and power flow of all hybrid sources have been studied.