First Solar (FSLR) has already invested $25 million in the solar financier and installer SolarCity. Now it is continuing to signal that it will offer financing of it’s own for solar power projects.

The move to provide financing to its solar power customers has sparked a debate within the industry on whether the possible reward of additional business outweighs the lending risk.

Other strong companies like SunPower Corp. (SPWRA) and Applied Materials Inc. (AMAT) are reluctant to follow First Solar’s lead.

SunPower Chief Financial Officer Dennis Arriola recently said “We’re not a bank…We don’t have the balance sheet and the wherewithal to be putting a substantial amount of equity into these deals.”

Normally financing arrangements are in the form of low-interest loans, but First Solar’s method is different in that the company protects itself by taking equity in the project until the funding is repaid.

There are not many details about the scale of the current financing, however during its earnings report last week First Solar Chief Financial Officer Jens Meyerhoff said the company planned to co-finance a solar power project that effectively makes it an owner and operator. Instead of selling its thin-film panels and booking the sale this year, the revenues will accrue over the next 20 years.

The deal has advantages. For one, it keeps First Solar’s project pipeline moving forward. Additionally, First Solar gains a steady revenue stream and a beachhead in what could become an important business opportunity as the solar market expands.

But taking on an equity stake likely means taking on risks, including the operations of the project, the continuation of government subsidies, infrastructure and other risks than simply selling panels avoids.

Meanwhile, First Solar’s strongest competitors aren’t preparing any similar strategies. SunPower said it doesn’t plan to finance projects and Mark Pinto, head of Applied Materials’ solar business, said this week that the company had no plans to extend financing but is looking at other initiatives to foster demand.

To be sure, First Solar looks better positioned than its rivals. It has a war chest of more than $716 million in cash and about $163 million in long-term debt. Comparatively, SunPower has roughly $220 million in cash along with long-term and convertible debt. Applied Materials, which sells tools to panel makers and doesn’t make panels itself, posted a loss last quarter as its semiconductor equipment business has suffered from an industry slowdown.

First Solar’s shares have fallen 49% over the past year; although at $125, they remain well above its $20 initial public offering in November 2006. And its market capitalization of $8.9 billion is $2 billion more than the combined market value of Citigroup Inc. (C) and General Motors Corp. (GM)

First Solar’s decision likely stems in part from the difficult financing environment the solar industry has encountered because of the global tightening of lending. Many smaller solar panel makers are having trouble finding funding to operate their businesses; meanwhile, investors who finance the power projects have become more sheepish as well.

Product manufacturers in other renewable energy areas have looked at financing before, said Mark McLanahan, an executive at MMA Renewable Ventures, which finds financing for solar projects. In the early 2000s, some wind power companies made similar moves, but they mostly returned to focusing on their technologies.

“You’ll see some fishing around,” McLanahan said. But after a while, “you’ll start to see people getting back to business, in their core businesses.”

“They’re totally different businesses. The first risk is that you don’t recognize that,” he added.

First Solar’s Meyerhoff said the company will “explore further activities” in financing based on the results of this project.

Meanwhile, analysts expect further consolidation in the industry, as highlighted this week in First Solar’s purchase of the entire solar portfolio of struggling OptiSolar for $400 million in stock.

First Solar’s stock dropped 22% following its fourth-quarter earnings report, gloomy outlook and announcement of the financing endeavor, but many analysts, while noting the risks involved in the new venture, remained bullish on the company.

“If you are producing product, you need somewhere to put panels, ultimately,” Wedbush Morgan analyst Al Kaschalk said. “If you can provide that financing to incubate or jumpstart that activity, why don’t you do it?”

Sempra Generation, a subsidiary of Sempra Energy (SRE), is a few weeks away from signing a contract with First Solar Inc. (FSLR) to have the panel maker install a 50-megawatt solar project, Michael Allman, Sempra’s president and chief executive said.

The project will be “the cheapest solar project in the country,” according to Allman. It would also be one of the largest. So far the largest solar photovoltaic, or PV, installation is a 14-MW SunPower

Corp. project at the Nellis Air Force base in Nevada. Florida Power & Light broke ground in March on a 25-MW photovoltaics project in Florida.

Allman said he wants to apply for federal loan guarantees to help finance the project. However, he’s worried about the prevailing wages provisions of the loan program, which require any project funded by

the federal government to pay workers union-scale wages. Allman said that typically solar installers earn about $16 an hour, but some of the cheapest wages on the federal register were around $40 an hour. He also said that to qualify for the loan guarantees the company would have to complete a national environmental study, on top of the state compliance, which adds to the cost and time of installing the project. Allman said he needs to clarify these issues before applying.

Tempe, Ariz.-based First Solar already installed a 10-MW PV project for Sempra near Boulder City, Nev., in December. Since then the panel company bought the project-development business of privately held OptiSolar Inc. Allman said that he’d like to discuss this with First Solar management as it appears that First Solar is increasingly “doing what we want to do,” he said.