Abstract Islanded microgrids with low-inertia distributed energy resources (DERs) are prone to frequency fluctuations. With the increasing integration of DERs in microgrids, the complexity of control and stability has also increased. Moreover, the integration of DERs into microgrids may result in a power imbalance between energy supply and demand during sudden changes in load or energy generation. This can cause frequency variations in the microgrid, which could have disastrous consequences such as equipment damage or even blackouts. This paper proposes a control strategy to ensure the efficient operation of an islanded hybrid microgrid consisting of a PV generator, battery energy storage system (BESS), and emergency diesel generator. According to Energy Exchange Model proposed in this paper, the hybrid system presented operates independently without being connected to the electrical grid, where the PV system and BESS act as the main energy sources, while the emergency diesel generator provides active power backup with voltage and frequency regulation. The novel in this paper is also that DER aids in frequency regulation during active power transients by delivering and absorbing active power in accordance with the inverter's suggested P droop control strategy. In this way inverter droop control decreases system frequency nadir emulating so called “synthetic inertia”. To design both the islanded hybrid system and the proposed control strategy, the MATLAB/Simulink environment is utilized. Based on the results, it can be concluded that the analyzed microgrid system is capable of maintaining stability and operating efficiently in a range of operating conditions.