In this study, firstly, the bi‐directional energy flow of grid‐connected photovoltaic and energy storage system based on power electronic transformer is demonstrated. Based on this, a bi‐level programming model is proposed for the location and capacity of energy storage. The optimisation of the location of the outer layer is based on the improved particle swarm algorithm. The energy storage location is a variable, and network loss as well as PET loss are objective functions. The improved particle swarm optimisation algorithm is still adopted to optimise the capacity in the inner layer. The cost of electricity from the main grid is taken as the objective function, and the economic dispatch is realised based on the energy routing strategy of power electronic transformer.