How does water contamination affect transformer oil performance?

Water lowers dielectric strength, increases partial discharge risk, accelerates paper aging, and can lead to bubbling under hot spot temperatures. Moisture also promotes oxidation and sludge formation, which impairs cooling. In oil paper systems, moisture migrates between oil and cellulose depending on temperature, so even a normal oil moisture reading can hide high paper moisture. That is why moisture testing, BDV, and dielectric dissipation factor are used together, and why drying or vacuum dehydration may be required.