A three-year research project, called DRYSMES4GRID, was recently funded by the Italian Minister of Economic Development, Italy. The project, which involves five Italian partners (companies, universities, and research institutes), is aimed to demonstrate the feasibility of cost-competitive SMES based on magnesium diboride (MgB2 ) with a cryogen-free cooling by means of the manufacturing and the testing of a demonstrator with an objective rating of 500 kJ/200 kW. This rating is deemed suitable for disclosing the critical technological aspects of all components in view of practical applications. A further goal of the project is the assessment of the technical and economic benefits that the SMES can bring to real-world electric grids. The general outline and technical objectives of the project are presented in this paper. Preliminary design assumptions and results concerning the MgB2 coil and the power condition system are also discussed.