Differential protection is a power system relay method that compares current entering and leaving a protected zone. Principle of Operation: These relays activate based on discrepancies in electrical quantities. The three basic principles of differential protection explained in this article, which has been known for decades, are still applicable and independent of the specific device technology. It works on the principle. The differential relay is the device that protect the important electrical equipments like transformers and generators from the internal faults and short circuits.