A diesel engine needs to operate under substantial load, to reach its optimum operating temperature. If it fails to reach this temperature, then a percentage of the fuel will be unburnt and a build-up of soot can occur.
Within the engine soot can cause internal glazing of the cylinder bores, sticking of the piston rings, reducing compression and the injectors are likely to have a build-up of carbon causing more unburnt fuel to pass through the combustion chamber into the exhaust.
The first sign of this problem is heavy smoke from the exhaust, eventually, the unburnt fuel will condense in the exhaust and mix with the soot, to create a thick dark liquid that looks like engine oil. This liquid will seep from the exhaust and will appear to be an oil leak. This liquid can build up in the exhaust silencer and there is the risk of it igniting from the increased heat of the exhaust fumes, if the generator is subsequently put under full load.
If a generator continues to be operated with no load or very light load there is a possibility that permanent engine damage can occur.