In this paper, a simplified model of an isolated microgrid (IMG) with hybrid photovoltaic (PV)-battery energy storage system (BESS) is discussed. The concept of peak load shaving is also demonstrated. The developed model helps an isolated power system to minimize the demand and maximize the economic benefit. MATLAB/Simulink tool was used to simulate the electrical circuit of the IMG system. The IMG model contains four sub-systems, namely the PV model, time varying load profile model, BESS model and gas turbine generator (GTG) dispatch model. To evaluate the performance of the developed IMG, a simulation case study was conducted under realistic load conditions of Universiti Teknologi PETRONAS (UTP). Results indicated that simulation illustrates the precise situation of the real-time system, as found in the UTP microgrid. Results also revealed that the concept of peak load shaving broadly illustrated in this study. The implementation of the proposed IMG model may bring economic benefit by minimizing peak load demand.