With the growing interest of microgrid systems all over the world, many studies on microgrid operation are being carried out. The battery energy storage system(BESS) and the diesel generator are key equipments in the microgrid. In this paper, we analyze the characteristics of fuel consumption according to the power ratio of the diesel generator. Then, the formula to represent the unit cost of generation according to the power ratio of the diesel generator is derived. A new modeling of battery

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... eration is presented considering the lifetime reduction according to increasing the cycles of charge/discharge operation of the battery. The methodology of determining the optimal operation of the battery and the diesel generator is presented by the use of the formula of fuel consumption of the diesel generator and the new modeling of battery operation. It is shown that this optimization methodology can be applied effectively for economical operation of the BESS and the diesel generator of a microgrid by case studies.