Unmanaged renewables integration into the power system will raise the possibility of small‐signal instability due to higher load deviations in the transmission lines. In power grids with a higher penetration level of the renewables, the load deviation can cause interarea oscillation in the grid. Meanwhile, large‐scale battery energy storage systems are promising solutions to enhance power system stability by smoothening the load profile and their fast response. To damp the interarea oscillations without compromising the voltage stability, we need to consider the battery's dynamic model in d−q axis. The battery's dynamic model in d−q axis allows us to integrate the battery into the power system and simulate both the battery's active and reactive power injection/absorption. In this paper, we model the battery energy storage on d−q axis. Then, the battery model is augmented into the two‐area four‐machine power system. An optimum hybrid controller using linear quadratic regulator techniques is designed to damp generators' frequency deviations. The results show that the interarea oscillations are damped without losing the voltage stability of the system.