This paper analyzes a hybrid energy system performance with photovoltaic (PV) and diesel systems as the energy sources. The hybrid energy system is equipped with flywheel to store excess energy from the PV. HOMER software was employed to study the economic and environmental benefits of the system with flywheels energy storage for Makkah, Saudi Arabia. The analysis focused on the impact of utilizing flywheel on power generation, energy cost, and net present cost for certain configurations of hybrid system. Analyses on fuel consumption and carbon emission reductions for the system configurations were also presented in this paper.