Differential protection is used to protect the transformer and generator against internal fault but for larger generators, additional protection is provided called Restricted earth fault protection. also known as REF protection.
When the neutral of the transformer or generator is solidly grounded then the generator gets completely protected against earth fault.
But neutral is grounded using an earthing resistor in series then the stator of the generator gets partially protected against earth fault. The percentage of winding protected against earth fault depends on the value of the earthing resistor and the relay setting.
Earth faults near the neutral point are rare because the voltage of the neutral point with respect to the earth is very small.
When an earth fault occurs near the neutral point then due to insufficient voltage across the fault, drives a very low fault current than the pickup current of the relay coil.
Hence relay does not operate. Because of this 15 to 20% of winding remains unprotected near-neutral point. and 85% winding is protected against earth fault by restricted earth fault protection.
If the relay setting is chosen too low to protect the winding part near the neutral point, the relay becomes too sensitive, and a false operation may happen.
The stabilizing resistor is connected in series with the restricted earth fault relay to avoid magnetizing inrush current and saturation of CT cores.
Consider the earth fault F1 occurs at the B phase as shown in the circuit diagram outside the protected zone. because of the insulation failure to earth.
This fault F1 induces current I1 and I2 which flow in the secondary of the CTs. the resultant current of CT secondary current, I1, and I2 becomes zero. Hence relay does not operate against external faults outside the protected zone.
When the fault F2 occurs inside the protected zone then only I2 current will get induced into the secondary of neutral CT and I1 is neglected.
The current I2 passes through the earth fault relay and it operates the earth fault relay which results in a circuit breaker trip.