This paper presents the effect of excitation capacitors degradation on self-excited induction generators (SEIG) for stand-alone applications. This type of generators have many advantages, however they are very sensitive to variation of the exciting source Understanding the mechanism of degradation of capacitor banks and their effect on the production system is crucial step prior to their fault diagnosis performing. The capacitor bank degradation can be related to the chemical aging, electrical and thermal stress conditions. To demonstrate the degradation effect on the SEIG a degradation model is presented then the overall system is computed under different degradation scenarios, the dynamic flux model of the self-excited induction generator with magnetic saturation is presented and validated by experimental results, the results are analyzed and discussed to show the impact of degradation speed on the production system.