The energy management will play an important role in the future smart grid by managing loads in an intelligent way. Energy management programs, realized via House Energy Management systems (HEMS) for smart cities, provide many benefits; consumers enjoy electricity price savings, and utility operates at reduced peak demand. This paper proposed an adaptive energy management system for islanded mode and grid-connected mode. In this paper, a hybrid system that includes distribution electric grid, photovoltaics, and batteries are employed as energy sources in the residential of the consumer in order to meet the demand. The proposed system permits coordinated operation of distributed energy resources to concede necessary active power and additional service whenever required. This paper uses home energy management system which switches between the distributed energy and the grid power sources. The home energy management system incorporates controllers for maximum power point tracking, battery charge and discharge and inverter for effective control between different sources depending upon load requirement and availability of sources at maximum powerpoint. Also, in this paper, the Maximum Power Point Tracking (MPPT) technique is applied to the photovoltaic station to extract the maximum power from hybrid power system during variation of the environmental conditions. The operation strategy of energy storage systems is proposed to solve the power changes from photovoltaics and houses loads fluctuations locally, instead of reflecting those disturbances to the utility grid. Furthermore, the energy storage systems energy management scheme will help to achieve the peak reduction of the houses daily electrical load demand. The simulation results have verified the effectiveness and feasibility of the introduced strategy and the capability of the proposed controller for a hybrid microgrid operating in different modes.