This paper proposes a combined nonlinear backstepping approach with direct power control technique for improving power quality of a three-phase grid-connected solar energy conversion system. The presented system basically extracts maximum power from solar photovoltaic array, converts it into AC power via a voltage source converter, and supplies it to the grid and connected loads. The proposed system offers not only the function of grid connected PV system but also it acts as a shunt active power filter (PV-SAPF). The system intends to eliminate the poor power quality issues and provides current conditioning while operating in coherence under nonlinear load variations. In order to validate the proposed double function system, processor-in-the-loop (PIL) tests are carried out for steady state and dynamic regimes under a nonlinear load operating condition.