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Power grid faults generate traveling wave signals at the fault point. The signals transmit to both ends of the faulted transmission line, and to the whole power grid. The traveling wave signals have many components with different frequencies and all the components have fault characteristics. The signals can be employed in locating accurately the fault, and the location method cannot be influenced by current transformer saturation and low frequency oscillation. The frequency band component with energy concentrated in the detected traveling wave is extracted by wavelet energy spectrum analysis. The arrival time of the component is recorded with wavelet analysis in the time domain. The propagation velocity of the component is calculated by the last recorded traveling wave arrived time at both ends of the tested transmission line, which is generated by an outside disturbance. The fault location scheme is simulated with ATP software. Results show that the accuracy of the method is little affected by fault positions, fault types and grounding resistances. The fault location error is less than 100 m.