There are problems of slow response speed, large overshoot, and poor robustness of traditional controllers. Thus a design method for an AGC controller for an interconnected power grid with flywheel energy storage based on a cascade PI-(1+PD) algorithm is proposed. First, the AGC system model of a two-area interconnected power grid with flywheel energy storage is established to simulate the process of a flywheel energy storage combined thermal power unit participating in AGC. Then, an AGC controller based on the cascade PI-(1+PD) algorithm is designed. The outer loop uses PI control, and the inner loop uses (1+PD) control with a filter coefficient. With the aim of ensuring the steady state performance of the system, it improves the dynamic response speed and disturbance suppression ability. The optimal controller parameters are obtained through iterative optimization of the particle swarm optimization algorithm. Finally, simulation analysis is performed in Matlab/Simulink. The results demonstrate that compared with the conventional PID control and the PI-PD control, the proposed method not only has faster response speed and smaller overshoot, but also enhances the robustness of the system against internal parameter perturbation.