Cities are concentrations of economic, social, and technical assets, which are fundamental to addressing climate change challenges. Renewable energy sources are growing fast in cities to mitigate greenhouse gas emissions in response to these challenges. In this transition urban decentralized energy shares technical and economic characteristics with energy islands. This is reflected in that island energy systems essentially operate off-grid which as a modus operandi can offer lessons to small-scale urban systems. With the expansion of urban areas, communities, especially small-scale ones, are sometimes further away from the main power infrastructure. Providing power supply to these communities would require significant investment to the existing power system, either to improve its grid infrastructure or power supply facilities. The energy islands have for some time now lent themselves to energy innovation including smart grid and battery storage applications. In this research we conceptualize that urban energy communities can be benefitted by knowledge transfer from energy islands in several fronts. We specifically put forward a life-cycle cost-benefit analysis model to evaluate the economics of battery storage system used in small communities from a life-cycle perspective. In this research we put forward a novel cost-benefit analysis model. Our results show that the inclusion of externalities can improve the economic value of battery systems significantly. Nevertheless, the economic performance is still largely dependent on several parameters, including capacity cost, discharging price, and charging cost. We conclude that existing electricity price structures (e.g., using household electricity price as a benchmark) struggle to guarantee sufficient economic returns except in very favorable circumstances; therefore, governmental support is deemed necessary.