This paper proposes a new configuration of UPQC that consists of battery and ultracapacitor connected to the DC link through DC/DC converters for compensating voltage and current related PQ problems. The main objective of this configuration is to enable UPQC to mitigate voltage interruption and reduce battery stress with the help of ultracapacitor. The proposed UPQC can compensate current harmonics, current unbalance, load reactive power, voltage sag, voltage swell and voltage interruption. The Shunt inverter inject currents to ensure a balanced, sinusoidal and unity power factor PCC current except under source voltage interruption during which shunt inverter operates in voltage control mode for maintaining balanced and sinusoidal load voltage. The Series inverter inject voltages to ensure a balanced and sinusoidal load voltage except under voltage interruption during which series inverter is isolated from the system. The combination of battery and ultracapacitor yield a power source having both high energy density and power density. Battery delivers average load power during voltage interruption while ultracapacitor takes all the load fluctuating power. The performance of the proposed UPQC with battery-ultracapacitor storage system have been verified through simulation results. © 2014 IEEE.