This article presents the performance analysis related to energy efficiency, economic feasibility and environmental sustainability of a hybrid power system, composed of photovoltaic modules, batteries and a Stirling engine powered by wood pellets. The analysis includes the dynamic start-up and cooling phases of the system, and then compares its performance with a hybrid photovoltaic-diesel-battery system. The first system consists of a 5.45 kW solar array, a 6 kW Stirling engine, a 6.92 kW bidirectional inverter and a 71.28 kWh VRLA gel lead-acid battery bank. The second one is comprised of 3.95 kW PV panels, a 7.1 kW diesel genset, a 4.46 kW bi-directional inverter and a 50.16 kWh VRLA gel lead-acid battery bank. The initial sizing of both systems was based on the demand estimated for a hypothetical case study of electrification for a 102-household rural village in Bolivia called “Tacuaral de Mattos”. Both systems were initially optimized in size using the well-known energy optimization software tool, HOMER. However, since the characteristics of the proposed system required a detailed analysis of its dynamics, a dynamic model that complements the HOMER analysis was developed using MATLAB Simulink TM 8.9. Furthermore, due to fluctuations of photovoltaic energy as well as the importance of the battery life cycle, a smart power management was implemented through combined dispatch algorithms. These control algorithms were composed of typical “Cycle charging”, “Load Following”, “Frugal” and “SOC set point” strategies. Additionally, a supervisory controller was designed in order to compensate the energy difference during the warmup, stand-by and cool-down modes of the Stirling engine and diesel generator. The results showed that PV-diesel-battery system represented a higher-performance option to implement in a rural electrification project compared to a PV-Stirling-battery system. However, the last one showed a better environmental sustainability as it was able to reduce carbon dioxide emissions during its operation (Around 10% savings in CO2 emissions).