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The thermodynamics of a latent heat storage element, connected to a heat source, periodically varying in time, and to a heat engine, is addressed. Two typical modes of operation, referred to as the series and the parallel setups, are considered. They differ with regard to the active phase of the heat source. For the series mode the entire amount of heat transfer fluid (HTF), coming from the source, is first passed through the thermal storage element (TSE) before entering the engine. For the parallel setup only a fraction of the HTF, supplied by the heat source, is delivered directly to the engine, whereas the remaining fraction of HTF is pumped into the TSE to facilitate the exergy storage. The optimal selection of the freezing point of the phase‐change material (PCM), the stability of operation of the engine, and the entropy production in the TSE during the heat storage‐discharge cycle are considered. The parallel and the series modes of operation are compared for some simplified TSE models. For these models the series setup yields a higher efficiency and stability than the parallel scheme. © 1995 American Institute of Physics.