The abundant wind resources in Penghu area, which features the impressive capacity factor up to 45%, attract the authority to build more wind turbines in the diesel-based power system. However, due to the instability of the wind turbine output, the high penetration of wind power in the system may affect relatively the system's power quality (voltage and frequency) and reliability. The past studies suggested that the optimal penetration level for wind generation be 26.3% under the present dispatching criteria in Penghu. This study suggests that the criteria of current unit scheduling have to be adjusted by increasing the spinning reserve capacity of the diesel engines without affecting the reliability and power quality of Penghu power system, consequently avoiding the construction of high cost energy storage systems. The proposed method can determine the number of online diesel units and the needed reserve capacity under different load levels by considering the reliability of power supply, the criteria for the limit of wind power penetration, the distribution in different sites for the wind turbines, and the required spinning reserve to compensate the energy loss when a single diesel unit trips offline or any N-I accident occurs.