Wind energy represents one of the most important renewable energy resources that can support electrical power systems. Behaviour of wind turbines following contingencies may deteriorate system stability. This requires an extensive analysis of the possible effect of wind energy on the entire power system performance. This paper investigates the effect of wind energy on power system dynamic response. This is achieved by replacing conventional generators gradually by wind turbine (WT). Also, the optimal location of WT has been determined by checking influence on steady state operation. In addition, the effect on total fuel cost is considered to determine the optimal location of WT. The IEEE 30-bus system is used during the study. The results indicate that the system stability is enhanced in most cases with integrating wind energy into power system. The results can provide a scope for future planning and expansion in electric power systems.