This paper demonstrates a novel method to integrate and control PV source and Battery storage in to a microgrid system to attain reduction in total harmonic distortion at the output. The closed-loop control of inverter has been achieved through using proportional integral controller (PI) and fuzzy logic controller. The results of output harmonics contents are compared for simple open-loop control and proposed closed-loop controls, and it clearly indicates that the closed-loop results far superior in terms of harmonic contents at the inverter output voltage. The control of battery energy storage system (BESS) has been presented, with the aid of a DC–DC bidirectional buck–boost converter for the different modes of operation, such as hold state, charging state and discharging state. With the intention of tracking the maximum power point from PV array, P&O MPPT technique has been used by which duty cycle of converter is controlled. Various operating conditions, such as photovoltaic source alone supplying to the entire load requirement and supplying to battery for its charging, PV source supplying to load requirement only, battery storage unit supplying to load requirement and lastly PV source and battery storage unit jointly supplying to the load requirement, have been analyzed extensively. Detailed analysis has been carried out on the output voltage, output current and output power waveforms for different operating conditions as discussed above, and the output results are analyzed for achieving more beneficial performance of the system. The suggested microgrid energy management system has been modeled and analyzed using MATLAB/Simulink tool. © Springer Nature Singapore Pte Ltd. 2018.