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The paper is about the design and prototyping of directly driven outer rotor permanent magnet generator for small scale wind turbine. In the paper, the initial design of the generator is given. Main issues and phenomena affecting the generator design, such as cogging torque and its reduction possibilities, selection and demagnetization risk assessment of permanent magnets, machine losses and thermal analysis, are described. Test results of prototype generator construction and final parameters are also presented. The necessity of further study is pointed out.