  One of the most important challenges in smart grid systems is the integration
of renewable energy resources into its design. In this work, two different
techniques to mitigate the time varying and intermittent nature of renewable
energy generation are considered. The first one is the use of storage, which
smooths out the fluctuations in the renewable energy generation across time.
The second technique is the concept of distributed generation combined with
cooperation by exchanging energy among the distributed sources. This technique
averages out the variation in energy production across space. This paper
analyzes the trade-off between these two techniques. The problem is formulated
as a stochastic optimization problem with the objective of minimizing the time
average cost of energy exchange within the grid. First, an analytical model of
the optimal cost is provided by investigating the steady state of the system
for some specific scenarios. Then, an algorithm to solve the cost minimization
problem using the technique of Lyapunov optimization is developed and results
for the performance of the algorithm are provided. These results show that in
the presence of limited storage devices, the grid can benefit greatly from
cooperation, whereas in the presence of large storage capacity, cooperation
does not yield much benefit. Further, it is observed that most of the gains
from cooperation can be obtained by exchanging energy only among a few energy
harvesting sources.
