In addition to dissipating heat due to losses in a transformer, insulating oil provides a medium with high dielectric strength in which the coils and core are submerged. This allows the transformers to be more compact, which reduces costs.
Insulating oil in good condition will withstand far more voltage across connections inside the transformer tank than will air. An arc would jump across the same spacing of internal energized components at a much lower voltage if the tank had only air. In addition, oil conducts heat away from energized components much better than air.
Over time, oil degrades from normal operations, due to heat and contaminants. Oil cannot retain high dielectric strength when exposed to air or moisture. Dielectric strength declines with absorption of moisture and oxygen. These contaminants also deteriorate the paper
insulation. For this reason, efforts are made to prevent insulating oil from contacting air, especially on larger power transformers. Using a tightly sealed transformer tank is impractical, due to pressure variations resulting from thermal expansion and contraction of insulating oil. Common systems of sealing oil-filled transformers are the conservator with a flexible diaphragm or bladder or a positivepressure inert-gas (nitrogen) system. Reclamation GSU transformers are generally purchased with conservators, while smaller station service transformers have a pressurized nitrogen blanket on top of oil.
Some station service transformers are dry-type, self-cooled or forcedair