Droop Current transformer is used to maintain the reactive power of the generator. Droop CTs are ordinary current transformer which is used only for AVR. AVR controls the reactive power of the generator with the help of Droop CT. At the same time the power factor can be adjusted with the help of droop CT reference only. These adjustment is performed by adjusting excitation current of the generator. When you increase the excitation current to the generator, which generates more reactive power and When you decrease the excitation current the generator produces less reactive power vice versa.
The drooping function in AVR is called as constant power factor mode. Thats why during home island mode of the generator these function has been disabled automatically with the help of AVR. Generally, it will be installed at Yph (center phase) of the alternator. While installing the droop current transformer the secondary winding terminals are sometimes referred to as S1 and S2, and the primary as P1 and P2, respectively.
Refer the figure. The Droop CT1 sense the phase current of the alternator/generator which send the output current to the automated voltage regulator unit (AVR). The AVR generators respective excitation current to the generator.