This paper presents a new scheme for smoothing out the voltage and frequency fluctuations simultaneously in a hybrid wind-diesel system using a super conducting magnetic energy storage (SMES) unit. The SMES unit located at induction generators' terminal bus, uses local measurements for exchanging real and reactive powers simultaneously in four quadrants. Complete model of the hybrid wind-diesel-SMES system is developed and is used for eigenvalue analysis and design of controllers. Computer simulation results illustrate the positive impact of the SMES unit on the quality of the supply and furthermore some modifications of the controller design are proposed.