The wind power generation is now emerging as most promising renewable energy sources in present power system. Among the different wind turbine generating units, direct drive synchronous generator (DDSG) has now become popular for power generation. This paper presents the state space modeling of DDSG to analyze its impact on power system oscillations for two-area interconnected power system. Eigenvalue analysis for the test system is carried out to investigate its small signal behavior and the participation factors have been determined to identify the participation of the states in the variation of different mode shapes. The variations in nature of oscillatory modes are presented to observe damping performance at different wind power penetration level.