There is an increasing interest in research to help overcome the energy crisis that has been focused on energy storage applications in various parts of power systems. Energy storage systems are good at enhancing the reliability or improving the efficiency of a power system by creating a time gap between the generation and the consumption of power. As a contribution to the various applications of storage devices, this paper describes a novel algorithm that determines the power and storage capacity of selected energy storage devices in order to improve upon railroad system efficiency. The algorithm is also demonstrated by means of simulation studies for the Korean railroad lines now in service. A part of this novel algorithm includes the DC railroad powerflow algorithm that considers the mobility of railroad vehicles, which is necessary because the electric railroad system has a distinct distribution system where the location and power of vehicles are not fixed values. In order to derive a more accurate powerflow result, this algorithm has been designed to consider the rail voltage as well as the feeder voltage for calculating the vehicle voltage. By applying the resultant control scheme, the charging or discharging within a specific voltage boundary, energy savings and a substation voltage stabilization using storage devices are achieved at the same time.