Differential relays are used to protect generators, buses, and transformers by comparing electrical quantities at different points. When a fault occurs, the difference in current between the two points triggers the relay to operate, opening the circuit breaker. Under normal conditions, the current entering (i₁) and leaving (i₂) a generator are equal. When a fault occurs, however, these currents become unequal, and the difference current flows in the relay operating coil, causing the relay to trip. An electromechanical differential relay, known as a balance beam relay, operates based on comparing electromagnetic forces generated by the differential current. The relay trips when the force on the operating coil exceeds the restraining force. The condition for relay operation is given by:

Bus protection is achieved by using differential relays to detect faults within the bus zone. The relay operates when the sum of currents entering and leaving the bus is not zero, indicating a fault.

Differential protection for transformers is more complex due to the presence of different windings and turn ratios. When the transformer operates under normal conditions with no internal fault, the primary and secondary currents, adjusted by their respective current transformer (CT) ratios, should balance. But in the case of an internal fault, the differential current flows through the relay operating coil, causing it to trip.

For three-phase transformers, CTs must be connected correctly to account for phase shifts caused by transformer windings. This ensures that the secondary currents are in phase, preventing incorrect relay operation. For Y-Δ transformers, CTs on the Y side should be connected in Δ, and CTs on the Δ side should be connected in Y.

Differential protection methods have been adapted for various transformer configurations, including multi-winding transformers, phase-angle regulating transformers, and transformers with special connections.