Innovation in solar cell technology has slowed as startups struggle to get a foothold in a tough market and solar panel manufacturers delay purchasing the equipment they need to manufacture more efficient cells. But First Solar, one of the world’s largest solar companies, continues to invest in boosting the efficiency of its solar cells.

The company, which is based in Tempe, Arizona, announced this week that it had set a new world record in efficiency for thin-film cadmium telluride solar panels. The equipment it uses to produce the record-setting panels will eventually be installed on all its production lines. It also announced the acquisition of Tetrasun, a startup with high-efficiency silicon technology that First Solar hopes to bring to market next year. First Solar’s stock jumped from $29 to over $40 on Tuesday and is still above $35 a share.

First Solar is able to make these investments because it is in a much better position than other major solar manufacturers, most of which are either declaring bankruptcy or on the brink of it (see “Why We Need More Solar Companies to Fail” and “Solar Downturn Casts a Shadow over Innovation”). It’s doing better for at least two reasons. Its solar panels are cheaper to make than conventional silicon solar panels, which has given it better profit margins. And it was one of the first companies to expand beyond making solar panels to become a project developer, designing and installing complete solar power plants. These projects create a steady market for First Solar’s panels and help it drive down costs in areas besides the panels themselves, which account for less than a quarter of the expense of solar power. The company’s good balance sheet and project experience also help lower the risk to investors, helping it secure better financing rates. And financing is now the biggest single contributor to the cost of solar power, accounting for 36 percent of the total for large installations and even more for smaller ones.

The industry is “getting so good on the technology that finance costs and project development costs are becoming dominant,” says Raffi Garabedian, First Solar’s chief technology officer. “We’re entering an era—the next five years, I think—where a lot of effort is going to be applied to reducing the cost of financing these systems.”

By next year solar power could cost as little as 10 cents per kilowatt-hour without subsidies and thus become cheap enough to compete with fossil fuels in many markets around the world, First Solar says. It expects to lower costs to 7.5 cents per kilowatt-hour by 2016, bringing solar power close in price to one of the cheapest sources of power in the United States—a new natural-gas power plant, which the U.S. Energy Information Administration expects to average 6.5 cents per kilowatt-hour over its lifetime.

Thin-film solar panels are less efficient than conventional silicon panels, and efficiency not only determines the number of panels needed for a project but affects costs for installation and financing. However, First Solar has been closing the efficiency gap. By the end of last year, the company’s cadmium telluride panels were converting about 13 percent of the energy in sunlight into electricity, compared with roughly 15.5 percent for silicon. As it installs more of the new equipment that allowed it to make its record-setting panel, that figure should increase. By 2016, the company expects its average solar panels to reach nearly 17 percent efficiency, with much of the improvement coming from advances that have already been demonstrated in its labs. Silicon panels will also improve over that time, but First Solar expects to have comparable efficiency at that point. Garabedian thinks it could be possible to reach 19 percent efficiency within five years.

Even with these advances, First Solar doesn’t expect to be able to compete in certain markets—especially in places like Japan. The solar market has been booming there since the Fukushima disaster caused nuclear power plants to be shut down, but most of the demand is for rooftop solar. With that technology, space is limited and costs for installation are relatively high, putting a premium on efficiency.

That’s why First Solar is turning to Tetrasun, which has developed a single-crystal silicon panel with an efficiency rate over 20 percent. First Solar says Tetrasun’s version of this high-efficiency technology will be cheaper to manufacture than similarly efficient—but expensive—silicon solar panels from SunPower and Panasonic.

The Tetrasun investment could be risky, says Shyam Mehta, a senior analyst at GTM Research. “Tetrasun’s technology is far from being proven as commercially viable—right now, it is a company of 14 people with little more than a pilot cell manufacturing plant,” he says. New solar technologies have been difficult to scale up, so a goal of mass-producing its panels by next year may be overly ambitious.

While improvements in efficiency may be the most powerful way to reduce the cost of solar power in the long term, most of the reductions in the next two years are expected to come in financing, which is far more expensive for solar than for many other capital projects, says Travis Bradford, a professor at Columbia University’s School of International and Public Affairs and president of the Prometheus Institute for Sustainable Development, a nonprofit research firm. He says First Solar is in a good position to lower these costs. “Suntech [the Chinese solar panel manufacturer] just went bankrupt, and most of the Chinese competitors have really bad balance sheets,” Bradford says. “But nobody thinks First Solar is going away.”