The frequency adaptive circle tracing observer based control strategy is proposed for power quality (PQ) improvement of the grid tied solar energy conversion system (SECS). The adaptive observer based control scheme has multi-functionalities such as harmonics compensation, unity power factor (UPF), grid currents balancing. The sliding mode control is used to extract maximum power in SECS under varying atmospheric conditions. The adaptive DC link voltage based approach is used to regulate the DC link voltage of voltage source converter (VSC), which reduces the tripping probability and losses of the converter under weak grid conditions. The optimization based approach is opted for optimal tuning of proportional integral (PI) regulator of the DC link voltage. Simulation results are demonstrated for various operating scenarios such as loads currents imbalancing, variation of common coupling point (CCP) voltages. Test results demonstrate the satisfactory performance of the system under various dynamic cases such as grid currents balancing, distribution static compensator (DSTATCOM) to SECS mode, SECS to DSTATCOM mode. The THDs of the grid currents are obtained within the IEEE-519 and 1564 standards.