Power sharing between distributed energy resources (DERs) is being a significant challenge in the stand-alone microgrid system as it must be ensured to supply good power quality supply for end-users. Due to the variable power generation, particularly from solar and wind energy resources, the energy storage systems are essential to store the excess energy and supply the energy during an emergency in the absence of a grid connection. This option ensures optimal energy management and therefore improves the reliability of the system. But at the same time, the maintenance, life span and cost are the drawbacks of battery systems, and therefore, some researchers are working on minimizing dependency of battery by storing energy in other different forms. In this paper, the following three alternative energy routes are proposed to utilize the excess energy for (a) water pumping system, (b) battery storage system and (c) dump load. Based on the variation of end-user consumption, the above three options are used to attain power balancing in the microgrid. In this study, the direct on line starter, DC–DC converter and electronic load controller control the water pumping, battery storage and dump load, respectively. To enhance the power quality, a modified RMS voltage-based droop controller is presented for operating two DER fed parallel inverters, as it assures stable operation and exhibits the following desired characteristics: (1) accurate real and reactive power sharing, and (2) voltage and frequency regulation. Furthermore, the stability analysis is carried out on the proposed system to test the effectiveness. [ABSTRACT FROM AUTHOR]