The aim of this study is to determine the costs and carbon emissions associated with operating a hydro-dominated electricity generation system (Vancouver Island, Canada) with varying degrees of wind penetration. The focus is to match the wind resource, system demand and abilities of extant generating facilities on a temporal basis, resulting in an operating schedule that minimizes system cost over a given period. This is performed by taking the perspective of a social planner who desires to find the lowest-cost mix of new and existing generation facilities. Unlike other studies, this analysis considers variable efficiency for thermal and hydro-generators, resulting in a fuel cost that varies with respect to generator part load. Since this study and others have shown that wind power may induce a large variance on existing dispatchable generators, forcing more frequent operation at reduced part load, inclusion of increased fuel cost at part load is important when investigating wind integration as it can significantly reduce the economic benefits of utilizing low-cost wind. Results indicate that the introduction of wind power may reduce system operating costs, but this depends heavily on whether the capital cost of the wind farm is considered. For the Vancouver Island mix with its large hydro-component, operating cost was reduced by a maximum of 15% at a wind penetration of 50%, with a negligible reduction in operating cost when the wind farm capital cost was included. (C) 2007 Elsevier Ltd. All rights reserved.