Harmonic distortion is mainly caused by non-linear loads and power electronics used in current electrical power system and Microgrids. The presence of non-linear loads, power electronics and the increasing number of distributed energy resource (DER) units in electrical grids contribute to changing the characteristics of voltage and current waveforms in current power systems. This paper proposes an accurate and effective harmonic analysis method: Harmonic Balance Method (HBM) for power electronics and distributed energy system. The HBM can calculate all forms of harmonics generated from nonlinear load including power electronics and inductive load, and saturated or DC biased transformers; therefore it can provide accurate prediction of harmonic components for the harmonic control and active power filter (APF).