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Condition monitoring can greatly reduce the maintenance cost for a wind turbine. In this paper, a new condition-monitoring method based on the nonlinear state estimate technique for a wind turbine generator is proposed. The technique is used to construct the normal behavior model of the electrical generator temperature. A new and improved memory matrix construction method is adopted to achieve better coverage of the generator's normal operational space. Generator incipient failure is indicated when the residuals between model estimates and the measured generator temperature become significant. Moving window averaging is used to detect statistically significant changes of the residual mean value and standard deviation in an effective manner; when these parameters exceed predefined thresholds, an incipient failure is flagged. Examples based on data from the Supervisory Control and Data Acquisition system at a wind farm located at Zhangjiakou in northern China have been used to validate the approach and examine its sensitivity to key factors that influence the performance of the approach. It is demonstrated that the technique can identify dangerous generator over temperature before damage has occurred that results in complete shutdown of the turbine.