With the popularization of renewable distributed energy generation in the power grid, flywheel energy storage systems (FESS) with fast response and high power density are gradually becoming popular for achieving fast frequency modulation. Generally, the rotor of high-speed permanent magnet synchronous machine (HSPMSM) used for FESS rotates in a vacuum to reduce air friction loss, which concurrently makes it difficult to dissipate heat in the rotor. For reducing rotor iron loss and preventing demagnetization of the PM due to high temperature, effective measures need to be applied. In this study, a 1 MW 10,500 r/min high-speed interior PMSM (HSIPMSM) is proposed for an FESS. As rotor iron loss is caused by alternating flux density harmonics (FDH) inside the rotor, the causes and characteristics of alternating FDHs are analyzed. Then, the finite element analysis (FEA) is combined with two-dimensional fast Fourier transform (2D-FFT) to obtain the alternating frequencies and amplitude variation trends of alternating FDHs in the designed rotor. The analytical results indicate that the amplitudes of alternating FDHs on the PM surface are effectively reduced due to bypass of the rotor core at the outside of the PM to alternating FDHs, which helps to restrain the rotor iron loss from the source. This provides a design idea for mitigating the high temperature of high-power high-speed PM rotors.