Small islands are usually characterized by high energy demand and no electricity network access with a consequent high fossil fuel energy consumption. This issue could be overcome by increasing the adoption of renewable energy systems and by enhancing the systems’ energy efficiencies. In this framework, the adoption of dynamic simulation and optimization analyses is crucial. For such a reason, in this paper, a novel approach based on dynamic simulation is presented and a suitable case study is conducted. Such an approach is developed with the twofold aim of increasing renewable energy penetration and improving the sustainability of small islands. The convenience in the dynamic simulation adoption is proven by investigating a suitable case study referring to the existing island community of El Hierro. The case study analysis focuses on the feasibility of converting its energy systems into an autonomous one by mixing different renewable-based technologies to traditional ones. The considered polygeneration system includes: i) wind turbines; ii) hydroelectric plants; iii) diesel engines; iv) solar thermal collectors; properly mixed to satisfy the electricity and hot water needs. Furthermore, to identify optimal configurations and maximize the share of renewable energy, a suitable parametric analysis is presented. Also, a hypothetical future scenario characterized by an island population increase is also investigated. Numerical results demonstrate the feasibility of the investigated polygeneration system, as well as the potentiality of the proposed methodology. Specifically, the dynamic simulation approach allows one to determine design criteria and to properly obtain a remarkable increase in terms of renewable energy exploitation and energy independence. In particular, the considered system configuration provides up to 85% of the annual electricity demand and about 82% of the annual thermal energy needs by renewable sources with substantial economic savings