In this system of earthing, the neutral point is earthed through the primary winding of a single-phase voltage transformer as shown in the figure below. The secondary winding of the voltage transformer is connected in series with a low resistor and a relay.
As the neutral of the system is connected through voltage transformer. A very high reactance earthing is provided by the voltage transformer. The voltage transformer acts as a fault indicator. If an earth fault occurs on any of the phases, it produces a voltage across the relay connected across the secondary. The relay operates and trips the protecting devices connected. The protecting device, thus isolates the circuit till the fault is eliminated.
The voltage transformer earthed neutral acts as a reflection point for travelling waves passing through the machine winding. These travelling waves cause high voltages in the circuit and in order to prevent high voltage built up a surge diverter is connected between the neutral point and the earth.