Circuit Protection against 500V surge
Yes the device's being tested in regards to IEC61000-4-5 surge testing


In that case you need to know the surge voltage series impedance that is appropriate for your device. The appropriate series resistance may range from 2 ohms to over 40 ohms and you need to talk with your lab to find out what is the correct impedance for your device to meet the specification you are trying to achieve.

In the worst case scenario the impedance is 2 ohms and this means that the peak current (with a 500 volt surge) can be as high as 250 amps. But, dependent on the test and your own circuit and how it is intended to be isolated from earth, the actual surge current may only be a handful of amps.


  In the actual test however, the TVS diode failed and shorted out,
  causing the power wires to burn and melt.


It seems to me that this means your circuit isn't isolated from earth and will "receive" the full 250 amps. I see there are nodes called "GND" but it's unclear that these nodes are "earth". So decide what is right and what is appropriate for the test setup and select the appropriate TVS.

Just in case you think there may not be a suitable TVS, rest assured that there will be. For instance, the SM30T is capable of hundreds if not thousands of amps of surge handling and, is specifically rated for the IEC 61000-4-5 surges: -



The above is one that I used on some equipment that needed to be rated for 2 kV IEC 61000-4-5 surges (peak of 1000 amps). However, the current surge was somewhat reduced by cable impedance so, do not neglect this because it will help.