TILOS is an Innovation Action EU-funded project under the Local/Small Scale Storage Call of Horizon 2020, engaging a total of 15 partners. The project aims to demonstrate the optimal integration of local scale energy storage in a fully-operated, smart island microgrid that will also communicate with a main electricity grid. The main objective of the project will be the development and operation of a prototype battery storage system, based on NaNiCl2 batteries, provided with an optimum, real-environment smart grid control system and coping with the challenge of supporting multiple tasks, ranging from microgrid energy management, maximization of RES penetration and grid stability, to export of guaranteed energy amounts and provision of ancillary services to the main grid. The battery system will support both stand-alone and grid-connected operation, while proving its interoperability with the rest of microgrid components, including demand side management aspects and distributed, residential heat storage in the form of domestic hot water. TILOS project addresses the high-priority area of island regions. In doing so, apart from Tilos island, TILOS also engages Pellworm, La Graciosa and Corsica, aiming to create an island platform that will enable transfer of technological experience. Finally, by also addressing social issues, through public engagement, and by developing novel business models and policy instruments, TILOS puts emphasis on the market diffusion of both battery storage systems and the integrated energy solution implemented on the island of Tilos. Having already covered the fist year of project implementation, the aim of this paper is to give an overall presentation of the TILOS project and at the same time illustrate the main accomplishments and issues arising during this early stage. Furthermore, the current work aims to also reflect upon the realization of an actual, demonstration project and elaborate on the application prospects deriving from the project successful implementation.