This paper proposes a new configuration and its control strategy for a modular multilevel converter (MMC)-based photovoltaic (PV)-battery energy storage (BES) system. In the MMC-based PV-BES system, each PV submodule is interfaced from its dc side with multiple PV generators using isolated dual active bridge (DAB) dc/dc converters. One BES system is embedded into each arm of the converter and is connected to the dc port of the associated BES submodule using multiple isolated DAB converters. The embedded BES systems are used to smooth the output power of the PV generators and limit the rate of change of the power delivered to the host grid. Moreover, they enable compensation of power mismatches between the arms and legs of the system by exchanging power with the arms of the converter. This paper then proposes a hybrid power mismatch elimination strategy using a combination of power exchange with the arms of the converter and internal power flow control of the MMC. The proposed hybrid power mismatch elimination strategy employs BES systems and differential currents to compensate power mismatches and transfer power between the arms and legs of the converter, respectively. The effectiveness of the proposed power smoothing technique using the embedded BES systems and hybrid power mismatch elimination strategy is demonstrated using time-domain simulations conducted on a switched model of the PV-BES system in PSCAD/EMTDC software environment.