69kV:12.47kV Dy1 Transformer Paralleling

I just realized the impedance will by bypassed by the grounded wye transformer making it useless

When the generator is paralleled with grid, the earth fault current in the 12kV system will be the sum of the contributions from grid transformer and ~200A from the GSUT. When the generator is islanded, the earth fault current will be limited by the GSUT NER to 200A.

If the earth fault protection of respective outgoing feeders is designed taking in to account this change in the current magnitudes (say protection with sensitive pickup and DT characteristic), the protection should work fine without a problem.

I think you care about the cable connecting the transformer neutral Y with the grounding impedance.

If the protection will clear the fault in max. 1 minute and the ratio of the zero to positive phase reactance of the system at the point of cable application does not lies between -1 and -40 [shall be less then 1 or more then 40] 100% insulation level is enough.

See:

UL 1072 Standard for Medium-Voltage Power Cables

Table 13.1:

"100 PERCENT LEVEL - Cables in this category are intended for use where the system is provided with relay protection such that ground faults clear as rapidly as possible but, in any case, within 1 min. While these cables are applicable to the great majority of cable installations that are on grounded systems, these cables also are installed for use on other systems for which the application of cables is acceptable (see next paragraph), provided that the above clearing requirements are met in completely de-energizing the faulted section."

The "next paragraph":

"In common with other electrical equipment, the use of cables is not recommended on systems where the ratio of the zero to positive phase reactance of the system at the point of cable application lies between -1 and -40 because excessively high voltages may be encountered in the case of ground faults."