The world has witnessed a rapid transformation in the field of electrical generation, transmission and distribution. We have been constantly developing and upgrading our technology to make the system more economically efficient. Currently, the industry faces an acute shortage of energy resources due to overconsumption by industries worldwide. This has compelled experts to look for alternatives to fossil fuels and other conventional sources of energy to produce energy in a more sustainable manner. The microgrid concept has gained popularity over the years and has become a common sight all over the world because of the ability of a microgrid to provide power to a localized section without being dependent on conventional resources. This paper focuses on development of such an AC hybrid microgrid, which receives power from distributed energy resources (DERs) such as a PV array alongside a battery storage system, and also uses an emergency diesel generator system and an online uninterruptible power supply (UPS) system to provide power to predefined loads under different conditions. This paper also addresses on the power flow to the loads under two main modes of operation—on grid and off grid—and investigates the microgrid in different states and sub-states. The final objective is to design an efficient microgrid model such that it can sustain the multiple loads simultaneously under all operating conditions.