This paper deals with a quadrature oscillator (QO)-based demodulation technique algorithm to improve the power quality of a grid-tied solar photovoltaic (PV) system in the distribution network for power factor correction, load balancing, and harmonics mitigation. The QO algorithm rejects the second harmonic generated by the demodulated load current. The improved incremental conductance-based maximum power point tracking scheme is utilized to extract maximum power from a solar PV array. Simulation results illustrate the effectiveness of QO algorithm for steady state and dynamic conditions to verify the effectiveness of the proposed algorithm. Test results show reliable, robust performance, and accurate estimation under steady state, variable insolation, load unbalancing, PV to distribution static compensator (DSTATCOM) mode and DSTATCOM to PV mode. The total harmonic distortion of grid current and grid voltage lies within the limits of the IEEE 519 standard. © 2005-2012 IEEE.