In this paper, a stability study of Kythnos island power system was investigated under power generation deviation due to solar insolation variations measured from ground and Earth observation. The system was tested under disturbances, like sudden shadowing of the photovoltaic generators due to cloudiness. It was assumed that the cloud was completely covering the island. Two other disturbances for a 24-h simulation were taken from real meteorological data, one from ground measurements and the other based on satellite data. Simulation tests for the first case show that the system is generally stable for penetration lower than 50%, while it becomes unstable at higher levels. Additionally, the shadowing effect was slow enough in order to cope with it. For the second case, the system is operating very close to the limits for high PV penetration. To optimize operation a satellite based nowcasting and short-term forecasting could be used. A 15-min advance notice that cloud cover is eminent would be adequate to start up the back up systems and avoid instability or black out events. Such a strategy allows reserve need reductions in clear sky cases, as changes in weather conditions can be predicted early enough in advance.