The driving factors in emerging photovoltaic (PV) systems and battery-energy-storage systems (BESS) are highly scalable feature, modular and flexible structures with superior transformerless performance. The feasibility of Modular Multilevel Converter (MMC) to operate without overall DC-link allows the integration of PV generators and battery strings with its submodules (SMs), whereas each SM acts as an independent voltage source due to its ability to insert/bypass the isolated DClink capacitor. In this paper, MMC topology based-split BESS along with distributed PV generators, integrated into each SM is proposed. The presented flexible energy conversion system extracts the maximum power from all distributed PV generators under substantial partial shading and allows the peak shaving to match the intermittent PV power with the variable power demand from the smart grid. With the absence of common DC-link and presence of large arm power variations, the introduced distributed PV-battery system provides balanced three-phase sinusoidal currents to the grid. A five-level three-phase MMC with proposed distributed PV-battery hybrid topology is developed. The simulation results under fast variations in solar irradiance and power demand by the grid are included, which demonstrate its superior performance.