This paper deals with the grid-interactive small battery energy storage system, which aims at the integration o( power quality improvement and demand side management. The main purpose of the proposed system is to achieve the peak power cutting and to compensate the current harmonics and reactive power at the point of installation on power distribution for residential homes. paper deals with the grid-interactive small battery energy storage system, In this paper, the basic principle and control algorithm is analyzed, theoretically and the design methodology of the system is discussed. To verify the proposed system, a comprehensive evaluation with theoretical analysis, simulation and experimental results for 1 KVA load capacity is presented.