Observer based approaches are commonly embedded in sensorless variable speed drives for the purpose of speed control. It estimates system variables to produce errors or residual signals in conjunction with corresponding measurements. The residual signals then are relied to tune control parameters to maintain operational performance even if there are considerable disturbances such as noises and component faults. Obviously, this control strategy outcomes robust control performances. However, it may produce adverse consequences to the system when faults progress to high severity. To prevent the occurrences of such consequences, this research proposes the utilisation of residual signals as detection features to raise alerts for incipient faults. Based on a gear transmission system with a sensorless variable speed drive (VSD), observers for speed, flux and torque are developed for examining their residuals under two mechanical faults: tooth breakage with different degrees of severities and shortage of lubricant at different levels are investigated. It shows that power residual signals can be based on to indicate different faults, showing that the observer based approaches are effective for monitoring VSD based mechanical systems. Moreover, it also shows that these two types fault can be separated based on the dynamic components in the voltage signals
