Peak shaving applications provided by energy storage systems are sustainable solutions for enhancing the existing capacity of distribution feeders and transformers in order to maintain their safe and reliable operation under an increased penetration of renewable energy sources and load demand growth. This work investigates the integration of a flywheel energy storage system installed in a feeder of a distribution network to provide peak shaving services. An empirical model is defined to determine the energy losses of a prototype flywheel system using an experimental setup. Furthermore, a multi-objective optimization scheme is proposed to minimize the flywheel energy losses along with the violated peak power of the feeder. Three different objective functions for applying peak shaving are presented and their efficiency is investigated in the simulation results. Finally, the impact of the flywheel energy losses on the peak shaving application of the distribution feeder is examined using a prototype and a commercial-grade flywheel energy storage system.