Energy based control with LQR stabilization for Furutua pendulum with velocity observer

Hi

I am facing an issue with my control system design in Simulink.

I have desinged a velocity observer for estimating the velocities from angular postions, it works great. Moreover an energy controller is desingend with LQR controller. When I use excact velocity the controller handels it and it is able to stabilize the pendulum in the vertical position. But when I use estimated velocity from the observer the controller is not able stablilize it.

The control structure can be found in the image below.

The system as whole can be found in this figure

The plot with estimated velocity in the controler and estimated velocities

Any suggestion why the stablization part of the controller does not work with estimated velocites?