With the growing deployment of smart distribution grid, it has become urgent to investigate the smart distribution grid behavior during transient faults and improve the system stability. The feasibility of segmenting large power grids and multiple smart distribution grids interconnections using energy storage technology for improving the system dynamic stability was studied. The segmentation validity of the large power grids and smart distribution grid inverter output interconnections power system using energy storage technology was proved in terms of theoretical analysis. Then, the influences of the energy storage device location and capacity on the proposed method were discussed in detail. The conclusion is obtained that the ESD optimal locations are allocated at the tie line terminal buses in the interconnected grid, respectively. The effectiveness of the proposed method was verified by simulations in an actual power system.