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I'm trying to understand how transformers work. I understand the primary/secondary stepping down/up voltage or current, but why do they use oil (in oil tank) with transformers?

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    \$\begingroup\$ Oil serves as both coolant since it can be circulated and it has very high dielectric strength so the transformer can be made much more compact. \$\endgroup\$ – winny Jul 5 '16 at 21:23
  • \$\begingroup\$ Thanks, but where does the oil go? Are the windings immersed in the oil? \$\endgroup\$ – MohS Jul 5 '16 at 21:25
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    \$\begingroup\$ Yes, the windings are submerged in oil. On transformers of significant size, there's also a radiator and a loop of pipework, like a car radiator, for the oil to convect around to cool down. You don't need oil in a transformer if it won't get too hot and doesn't need it to keep the insulation size down. For example, most transformers in consumer devices that transform down from line voltage have no oil, or anything like it: they're just let get a little bit warm. \$\endgroup\$ – Dan Sheppard Jul 5 '16 at 22:41
  • \$\begingroup\$ There is an oil bath, the windings sit in the oil. google.com/… I think this question could have been answered without asking a question. The guidelines listed here [electronics.stackexchange.com/help/how-to-ask] suggest that one should do some research before posting a question \$\endgroup\$ – Voltage Spike Jul 5 '16 at 22:42
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    \$\begingroup\$ @Mohammad Moreover, the windings are insulated by a special type of paper which by itself does not guarantee much isolation but that paper does a very good job at soaking up transformer oil without loosing its mechanical stability and voilá, you have spacing between the windings with transformer oil as the dielectric. \$\endgroup\$ – winny Jul 6 '16 at 6:21
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Transformers are oil filled for two reasons:

Cooling

The transformer windings dissipate waste heat, which needs to be removed. Transformer oil absorbs this heat from the windings and conducts it to the outside of the transformer, where it can be dissipated to the outside air.

It is possible to build an air-cooled transformer. These are used where spillage of the insulating oil is an un-acceptable hazard. I.e. for indoor substations, where the oil would be a fire hazard. Dry-type transformers are generally more expensive than oil-filled transformers.

Insulation

All parts which might be at different voltages must be insulated from each other.

In air insulated equipment (no oil) adequate clearances must be allowed around all live parts, to prevent flashover through the air. Alternatively, solid insulation would be required to all live parts (expensive.)

Oil is a much better insulator than air, so the clearances can be reduced. This makes the equipment much more compact.

Commercially produced transformers use both solid and liquid insulation. Solid paper insulation is used for the windings, where compactness is critical. Oil insulation is used to cover all the parts that don't have solid insulation. The oil also penetrates into the paper and fills the air gaps, improving the quality of the paper insulation.

Transformer oils

Poly-chlorinated biphenyl (PCB) used to be the insulating liquid of choice. It has ideal engineering properties - it's a great insulator, high thermal conductivity, etc. Unfortunately it's also highly toxic. Like asbestos, it is now banned, and cleanup/disposal of existing PCB-filled equipment is an ongoing expense.

Most transformers are now filled with mineral oils of some type. These oils are specially formulated for the application. There are a few different types and they don't all intermix! Some care is required to select the correct oil when topping up the oil in an existing transformer.

It's also possible to fill transformers with vegetable-based oils (again, specially formulated for the application.) Claimed benefits are - less fire risk, better moisture adsorption, environmentally friendly. This costs a bit more than mineral oil, so it is usually available as a "special option", not the default.

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    \$\begingroup\$ "It is possible to build an air-cooled transformer." - You make it sound like dry transformers are the exception while they are, in fact, incredibly common. Almost every electronic consumer doodad that uses mains electricity uses a transformer. And none of them are oil-filled. Oil-filled transformers are common only in high-power applications. In particular, in mains distribution networks. \$\endgroup\$ – marcelm Jul 29 '17 at 8:45
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    \$\begingroup\$ @marcelm: Fair point. Professionally, I deal with kilovolts and megawatts - so 99% of the transformers I deal with at work are oil-filled. In the world of electronics, oil-filled transformers are nearly unheard of. It's a matter of perspective. \$\endgroup\$ – Li-aung Yip Jul 30 '17 at 14:05
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High power transformers often have the core and windings immersed in a liquid (not always oil, poly-chlorinated byphenol used to be popular). These transformers usually have fins sticking out from the core. One purpose of the liquid is to convect heat from the core to the fins, where it can be more easily dissipated to the outside.

The liquid is also chosen to be a good dielectric. This acts as additional self-healing insulation.

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