This work presents an islanded microgrid energy system that uses backstepping control applied to neutral point clamped (NPC) multilevel converters coupled with batteries to behave as virtual generators, able to absorb surplus renewable energy, therefore increasing the penetration of renewable energy sources. Additionally, on a charged battery the virtual generator allows turning-off the backup diesel generator set (GenSet). Aside from improving energy efficiency, the battery-connected multilevel converter aims to regulate frequency, improves power quality, and keeps the microgrid operational in the event of a GenSet failure. The backstepping controlled NPC multilevel converter emulates a virtual generator injecting power to perform as the primary and secondary microgrid frequency controller. Additionally, AC voltage control is implemented, which enables running the islanded microgrid only with multilevel converters, supplied by the battery while integrating solar and wind energy sources. Energy demand and renewable energy forecasts are used to manage the battery state-of-charge. Simulation results, obtained from switched and phasor models show that energy storage and the backstepping frequency control enables the compensation of power fluctuations from renewable energy sources. Furthermore, in the event of the main GenSet failure, the controlled virtual generator keeps the microgrid running for a few minutes, until another GenSet is ready to supply the microgrid. Therefore, the microgrid integration of the battery-connected multilevel converter results in a significant boost in energy efficiency by allowing the disconnection of the backup GenSet.