This paper aims to show how the key limitations on common diesel generator operations affect performance and effectiveness of isolated microgrid (MG) composed of the diesel generator sets (GSs) and wind turbines (WTs). Specifically, it shows how the GS’s operational limitations and power demand variability define a trade space for design of efficient MGs. The paper starts with exploring the design space for a GS-based MG presenting analytical derivations of the key performance parameters and then extends this analysis to include WTs. The paper proceeds with analytical evaluation of achievable renewable energy penetration coefficient of such a MG and provides an example of applying the developed tools to visualize real operational data available for several isolated MGs.