First Solar (NSDQ: FSLR) has made it to grid parity, according to at least one analyst.

A 12.6-megawatt system installed by First Solar for Sempra Generation showed that the system can produce electricity at below the price of conventional power in the United States, said Mark Bachman, an equity analyst at Pacific Crest, in a research note Tuesday.

The system can generate 12.6 megawatts of power in direct current, which is then converted to alternating current to feed the electric grid. First Solar announced the project as a 10-megawatt (AC) power plant earlier this year.

The plant, located in the Nevada desert near Boulder City, costs $0.075 per kilowatt hour to install without any subsidies, Bachman wrote. Conventional power fed into the grid costs $0.09 per kilowatt hour.

"In our view, the industry leaders will be those companies that can deliver electricity at or below grid parity pricing without the aid of subsidies while also delivering superior return to shareholders," Bachman said. "Currently, only First Solar can claim these achievements, in our view."

Bachman's cost calculations, of course, are impacted by a number of factors. Others will likely come to different conclusions. Part of the calculation relies on what others are achieving in other locations with different kinds of panels. Nonetheless, it underscores the progress the industry is making toward the important milestone.

And First Solar isn't the only one narrowing in on it. Yesterday, Cypress Semiconductor CEO T.J. Rodgers told a group of reporters that power from crystalline silicon solar panels will be cheaper than coal power by 2012 when transmissions lines, utility bureaucracy and other factors are added in.

"We are zeroing in on parity," Rodgers said. "We're going to match PG&E (Pacific Gas and Electric) by 2012. Within a couple of years, the price of solar will be just as cheap."

Rodgers invested in SunPower in 2000 when it had 40 employees. He turned the shares over to Cypress later. SunPower now sells billions worth of panels a year.

First Solar, based in Tempe, Ariz., makes thin-film solar panels using cadmium tellurium as the key ingredient to convert sunlight into electricity. It's one of a handful of thin-film companies to be producing panels in high volumes and the only one turning out cad tel panels in volume.

Most of the solar panels today use crystalline silicon, which is able to convert more sunlight than materials used by thin-film makers. Next year, a handful of manufacturers will start making copper indium gallium selenide (CIGS) solar cells.

First Solar's claim to fame for the past several years has been in its ability to churn out large numbers of panels and a fairly low cost. Last month, the company said it was able to produce panels at $1.08 per watt. The figure, however, is a blended average of all of the company's factories. First Solar's cost out of its Malaysian factories is lower, closer to 75 cents.

The $40 million system at Sempra is comprised of 168,300 panels, which First Solar installed at a cost of $3.17 per watt, Bachman wrote. (The installed cost is higher because it includes frames and installation, not just the solar module.)

He cited SunPower's installation of a 14.2-megawatt system at the Nellis Air Force base in Nevada for comparison. Bachman said SunPower's crystalline silicon panels cost $7.04 per watt to install.

After figuring out how much electricity the system is generating, Bachman determined that it costs $0.164 per kilowatt hour.

He concluded that for the SunPower system to generate electricity at the same rate (in kilowatt-hours) as First Solar's, SunPower would have to cut its panel prices by 52 percent and sell them at $3.4 per watt.

But Bachman went on to argue that the solar industry cares too much about the cost of producing and installing panels, and not enough about the how much a system costs in terms of its power generation, in kilowatt-hours. He noted that financial analysts should do so when dissecting the average selling price of a company's panels.

"By focusing on the cost/kWh calculation, we can compare competing business models on a defined metric that is independent of technologies," he said.

Bachman also figured that First Solar's system make more efficient use of real estate than SunPower's, something that contradicts SunPower's claim and the estimates of others.

SunPower's system needs more space because it uses a tracking system to point the panels to the sun throughout the day. Crystalline panels perform the best when facing the direct sun.

By using the tracker, however, the panels need to be farther apart to avoid the shadow cast by other panels as they follow the sun, Bachman said. That means it would take more space to fit a SunPower system than a First Solar system at comparable capacity, he said.

First Solar tilted its panels at a fixed angle instead. Its cadmium-telluride panels might not be as efficient as SunPower's panels under direct sun, but the thin-film panels do better at converting diffused light.

SunPower, however, achieves a far higher efficiency. It sells panels that can convert 20 to nearly 23 percent of the sunlight that strikes them into electricity. First Solar's cad tel panels wallow around the ten percent range.