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One of the main concerns of hybrid power system is the fluctuation of voltage and frequency of the system due to variation in the load and renewable power. A number of different types of energy storage techniques, which are theoretically and operationally available, have been proposed to remedy such fluctuations. One long-term storage option is compressed air. In this paper, the effects of the working pressure and system design of a typical compressed air storage system on the overall performance of a hybrid system is investigated. The model of a hybrid wind-diesel-compressed air generating system is developed and simulated using MATLAB. It is shown that the energy storage system and the proper sizing of the same play a vital role in increasing the renewable energy penetration.