Micro-grid system is currently a conceptual solution to fulfill the commitment of reliable power delivery for future power systems. Renewable power sources such as wind and hydro offer the best potential for emission free power for future micro-grid systems. This paper presents a micro-grid system based on wind and hydro power sources and addresses issues related to operation, control, and stability of the system. The micro-grid system investigated in this paper represents a case study in Newfoundland, Canada. It consists of a small hydro generation unit and a wind farm that contains nine variablespeed, double-fed induction generator based wind turbines. Using Matlab/Simulink, the system is modeled and simulated to identify the technical issues involved in the operation of a micro-grid system based on renewable power generation units. The operational modes, technical challenges and a brief outline of conceptual approaches to addressing some of the technical issues are presented for further investigation.