This paper deals with a single phase grid connected SECS (Solar Energy Conversion System). The proposed multifunctional SECS system also helps in power quality improvement at PCC (Point of Common Coupling). It consists of a boost converter, which serves the purpose of MPPT (Maximum Power Point Tracking) and a VSC (Voltage Source Converter), which performs reactive power compensation, harmonics elimination and feeding solar energy into the grid. A Luenberger observer based control algorithm is proposed for the control of VSC. The Luenberger observer is used as a fundamental extractor from which the consumed average power component of load current is extracted. This extracted component of load current is used as feed-forward in dc link control loop. A feed forward term for the solar contribution is also used to improve the dynamic response in case of climatic change. A PI (Proportional-Integral) controller is used to regulate the DC link voltage to desired value. A wide range of simulation studies are presented to demonstrate all features of proposed system. The system is tested undervarious dynamic loading and climatic conditions. The performance of proposed system is found satisfactory for various linear and nonlinear loads. The THD (Total Harmonic Distortion) of grid current is observed well under IEEE-519 standard under all loading conditions.