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Environmental concerns and fuel cost uncertainties associated with the use of conventional energy sources have resulted in rapid growth in the amount of wind energy connected to distribution grids. However, based on Ontario's standard offer program (SOP), the utility has the right to curtail (spill) wind energy in order to avoid any violation of the system constraints. This means that any increase in wind energy production over a specific limit might be met with an increase in the wind energy curtailed. In spite of their cost, energy storage systems (ESSs) are considered to be a viable solution to this problem. This paper proposes a methodology for allocating an ESS in a distribution system with a high penetration of wind energy. The ultimate goal is to maximize the benefits for both the DG owner and the utility by sizing the ESS to accommodate all amounts of spilled wind energy and by then allocating it within the system in order to minimize the annual cost of the electricity. In addition, a cost/benefit analysis has been conducted in order to verify the feasibility of installing an ESS from the perspective of both the utility and the DG owner.