When faults occur in the microgrids, high frequency transients will be superimposed on the system currents and voltages. The magnitude of those transients will attenuate as it encounters the discontinuity points in the network such as busbars, or any other impedance discontinuity points. This phenomenon can also be quantified by wavelet energy, which provides a useful tool to detect faults and locate the faulted feeder in the microgrid. In this paper, a novel protection scheme based on the transient wavelet energy of the superimposed current extracted by the Maximal Overlap Discrete Wavelet Transform (MODWT) algorithm is developed to detect faults and locate the faulted feeder in microgrids. Compared with existing protection schemes, the proposed protection scheme has the advantage of being largely immune to the changes in system fault level, fault types and positions, microgrid operating status and the control strategies deployed on the inverters, while presenting much lower requirement on the sampling frequency (10 kHz) compared with travelling wave-based methods. Unlike the conventional differential protection, the proposed scheme does not require synchronized measurement or high bandwidth communication channels, and thus, it can be considered as an economical and promising solution for microgrids.