For decades, grid parity has been the holy grail of the solar industry. It's the mythical transition point when solar suddenly becomes cheaper than the grid, opening up a world of new demand and leading to a solar revolution.

As recently as two years ago, the solar industry was fighting the fact that solar power cost significantly more than the grid, requiring subsidies to keep the industry afloat. Today, rapidly falling costs have transformed the industry, and in many locations grid parity is already in the rear view mirror.

South America goes subsidy-free
Last month, SunPower (SPWR -1.02%) announced a 70 MW solar project in Chile that will be sold into the spot market. There's no guaranteed purchase price, nor net metering with the grid, though Chile does have net metering; power is simply sold to the utility the same way any other power plant's power is sold.  

The $200 million project will be built by SunPower and partially owned by Total (TTE -0.32%), SunPower's majority owner. This is one of the first cases of Total taking a direct part in a SunPower project, but investors should expect the oil giant to play a key role in grabbing share in the Middle East, South America, and Africa.

First Solar (FSLR -1.46%) also has its eyes on Chile, purchasing 1.5 GW of pipeline earlier this year. 162 MW of that pipeline has moved forward to the permitting stage, and management is extremely bullish thanks to the country's strong sunlight and high energy prices.  

US and European projects are already below grid prices
US solar projects aren't yet being sold to the grid on the spot market, but they are below retail prices and approaching parity with prices on the wholesale market. SunPower signed an agreement to sell power from its 100 MW Henrietta Plant in California for 10.5 cents per kW-hr, well below the state's retail rate of about 16 cents per kW-hr.

First Solar is also selling power from a Macho Springs project in New Mexico for 5.79 cents per kW-hr. Even when you add in state incentives amounting to about 2.7 cents per kW-hr for the next ten years, the cost of about 8.5 cents per kW-hr is well below the 10.1 cent per kW-hr average cost of electricity in New Mexico during July.  

Europe's feed-in tariffs for solar power are now below 15 Euro cents per kW-hr, well below the 26.5  Euro cents the average retail customer pays.

Residential solar is the game changer
What has really upset the traditional energy industry is the expansion of homeowners generating their own power. SolarCity (SCTY.DL) is the industry's leader, offering $0-down solar leases to customers who then sell excess power back to the grid. Solar leases still benefit from the 30% federal investment tax credit, but there's no guaranteed rate from the utilities. In that respect, it's the best judge of grid parity.

What SolarCity (and, to a smaller extent, SunPower) can do is lease panels for a lower cost than the price of retail power. In California, for example, that means leasing a solar system for $0.18 while utilities charge in excess of $0.20 per kW-hr. For SolarCity, payback comes over 20 years -- and the payoff is projected to be between $1.50 and $2.70 per watt this quarter, versus a typical installation cost of about $3-$4 per watt.

Residential solar already costs less than the grid, and, considering the high margins SolarCity and SunPower are generating, there's still opportunity to mover lower.

Solar power is here to stay
The cost of solar power is moving lower, while the cost of generating electricity from traditional sources typically rises 1%-3% each year. With solar already past grid parity in Chile, on California roofs, and on most utility scale projects, the sky is the limit for the industry.

Grid parity marks the point where solar demand should explode worldwide, and it's blowing through that point faster than most people think.