<p>Electric vehicles and photovoltaic power generation are two of factors that are increasing the demands on the electrical grid. To cope with these challenges and to improve grid stability, the development of a transformer monitoring system as a fundamental part of the smart grid is necessary. Dissolved hydrogen in the transformer oil can serve as a primary indicator of the transformer health. Depending on the hydrogen concentration and rate of increase the transformer can be diagnosed. The goal of this thesis was to develop a highly sensitive hydrogen sensor for online health monitoring of transformers. The developed sensors are based on palladium and fiber Bragg gratings (FBG). Palladium expands with hydrogen absorption and this expansion is measured with an FBG. Detailed guidance for optimizing the sensor design is given. First, the selection of the working temperature is discussed. Second, the influence of the palladium geometry on the sensitivity is elaborated: by varying the cross-sectional area ratio of palladium to fiber the sensitivity can be tuned. Two different options to attach palladium are discussed: vapour deposition of palladium and adhesive bonding of palladium foils. The sensitivity of the palladium foil sensors was improved by improved manufacturing processes. The foil sensor have a sensitivity of up to 295 pm/% hydrogen and a resolution of 0.006% hydrogen in gas atmosphere at 90◦C and 1060 mbar. To further increase the hydrogen sensitivity two concepts for amplification of the signal are presented. One relies on palladium silver foils, which have an increased hydrogen solubility and therefore expansion compared to pure palladium, which achieved an increase in sensitivity of a factor of 17. This leads to sensitivity of over 4500 pm/% hydrogen, which is the most sensitive hydrogen sensor reported so far. The other concept relies on a novel concept for strain concentration using a pre-strained palladium foil and FBG, which achieved an amplification of a factor of 2.5. The sensors were characterised in gas and oil environment in a newly developed setup which is stable in pressure, temperature and gas concentration. In gas the sensors were tested at 60, 75, 90, 105, and 120◦C and for a hydrogen concentration range of 0.01 (100 ppm) to 5%. In oil the sensor was tested at 90◦C and for a hydrogen concentration range of 5- 4000 ppm dissolved hydrogen. Furthermore, the influence of carbon monoxide (CO) on the hydrogen sensitivity was examined. A slowed response could be observed, but CO had no impact on the precision of the sensor. Finally, the hydrogen calibration of the sensor is discussed by investigating the strain transfer between expanding palladium and fiber. Three different methods are elaborated to determine the coefficient of strain transfer: (a) via hydrogen measurement, (b) via temperature measurement, and (c) via strain measurement. Methods (a) and (b) were applied directly on the hydrogen sensor, and gave similar results. Method (c) was applied on a reference structure and used to verify method (b). A hydrogen sensor suitable for transformer health monitoring has been developed and characterised, and is currently being implemented in a transformer in the New Zealand network.</p>