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This study focuses on sensor fault-tolerant control (FTC) for grid-connected variable speed wind electrical systems (VSWES) to regulate active and reactive power flow through the grid. The closed-loop performances of the VSWES massively depend on the precise voltage and current sensing. An abrupt failure or faulty measurement in one of the sensors may lead to system malfunction. To overcome this, the fault has to be detected and handled quickly. A simple and intelligent fault detection and isolation (FDI) algorithm is proposed in this study with which FTC is implemented for VSWES. The FDI is derived from model-based observer schemes, which are developed using neural networks. The wind electrical system with permanent magnet synchronous generator and matrix converter is adopted here. The grid voltage-oriented control scheme is developed for power flow regulation. The simulation and experimental results are presented to illustrate the effective functionality of the system.