In the following thesis, design and implementation of an emulator is provided to emulate the parallel operation of a hybrid diesel engine generator (GENSET) and hydrokinetic energy conversion system (HKECS) in a microgrid with the aim of improvement in overall performance of the genset in terms of fuel consumption, emission and efficiency. The mechanical and electrical parts of a typical genset are modeled mathematically in a digital controller (ds-1103, dSpace) and the model is fed to a current and voltage controlled voltage source inverter (VSI) which is designed for the emulation of the generator output voltage to produce the same output power characteristics as in a real diesel engine generator. Output available power of a second source (only steady state behaviour of a HKECS) is emulated using a current controlled VSI (CCVSI); which is fed by reference signals determined by the available power flow of the water.  In addition, a novel method for combination of the genset and HKECS is proposed to enforce the genset to operate in the least brake specific fuel consumption (BSFC), most efficient or less emission operating points. Since no dedicated physical communication channel is desirable and generally does not exist in real applications, yet there is a demand to communicate between two sources to keep one in a particular operating point, a modified droop control scheme is defined to communicate indirectly. A detailed analysis show that efficiency, emission and fuel consumption are significantly improved in comparison with conventional methods. For experimental validation, the control algorithm is implemented in dSpace using the DS-1103 controller. The experimental results confirm improvements in fuel consumption for a specific BSFC curve to 1 gr in 10 seconds for a load of P=1200 W by engaging the proposed method.