The paper presents a fuel saving, adjustable speed, autonomous generation system providing fixed amplitude and frequency sinusoidal voltage. A permanent magnet generator, driven by a Diesel engine, delivers variable frequency and amplitude AC voltage whereas an AC/DC/AC converter produces demanded voltage. Autonomous generation system is dedicated to the AC microgrid as the basic and continuous source of electricity. It supplies a great number of loads and in a case of short circuit, a tripping switch should instantly disconnect the malfunctioning user and continue power supply action. A very high current is required to disconnect the tripping switch, thus an AC/DC/AC power electronic converter must be significantly over-dimensioned. During the short circuit, the bypass made of parallelly connected thyristors (direct converter type cycloconverter) connects the generator to the power electronic converter's output, thus the variable frequency and amplitude of the generator voltage is parallelly connected to the inverter. The paper describes the adjustable speed generation system equipped in the asynchronous bypass and presents experimental results of the 40 kVA generation unit driven by a Diesel engine.