This paper presents the control of battery energy storage system (BESS) with diesel generator (DG) set. The performance of the DG set is observed best when operated at full load or near full load (up to 80-100% load) condition. For this purpose a BESS is employed which ensures the load on the generator remains in between 80% to 100% of full load. Under light load condition (load less than 80%) the battery is being charged and in heavy load condition (load more than 100%) energy from battery is utilized to feed extra power to the load and when load is in-between 80 to 100% battery remain in floating condition. Along with load management, BESS provides the reactive power, harmonic current and unbalanced load current compensation. The control of BESS is achieved using synchronous reference frame theory (SRF) to extract the balance positive sequence real fundamental frequency component of load current. The switching of voltage source converter (VSC) working as BESS is achieved by forcing source currents to follow reference currents using hysteresis based PWM controller. The complete system is simulated under MATLAB environment using SIMULINK and PSB block-sets to demonstrate the capabilities of the system