This paper deals with electromagnetic loss analysis and minimization in an integrated Flywheel Energy Storage System (FESS). The FESS consists of a large-airgap Surface-Mounted Permanent Magnet Synchronous Machine (SPM), whose inner rotor integrates a carbon-fiber flywheel, leading to a compact and efficient FESS. Electromagnetic losses minimization is achieved through an accurate SPM modelling, which accounts for both Joule and core losses, as well as for flux-weakening operation. Consequently, SPM maximum efficiency is obtained by injecting a proper demagnetization current component at each operating condition, which guarantee the optimal trade-off among the different losses’ contributions. The effectiveness of the proposed approach is validated through numerical simulations.