Wind farms installed on isolated systems are subject to significant restrictions, affecting their expected energy yield and, hence, the feasibility of investments. As wind power penetrations increase in isolated power systems, it is very important to understand how variations in wind plant outputs affect the operation of the isolated system on a day to day basis and what the associated added costs are. In this paper, a wind-Diesel coordination generation scheduling (WCGS) software is developed for appropriate assessment of the added cost to cover the unpredictable wind generator output variations. The developed WCGS software is also a useful tool for the system planner to predict the energy cost and the fuel saving from the expected new wind-Diesel systems. Several technique constraints are applied to determine the optimal proportion of wind generator capacity that can be integrated into the existing system. A simple benefit cost ratio (BCR) is used in this study to evaluate the investment effectiveness of the installation of wind farms for an isolated hybrid system. Numerical experiments are included to understand the wind generator output variations in system operating cost analysis and to assess the impact and economic benefits of the installation of wind farms. (C) 2008 Elsevier Ltd. All rights reserved.