Lower technology costs, aggressive state environmental standards, and federal tax credits helped contribute to a 16% jump in new solar utility capacity in 2013, according to the EIA. This increase brought solar's new utility scale additions to 22% of total capacity, second to natural gas-fired plants, which accounted for approximately 50% of new capacity in 2013.

Us Power Additions

Source: EIA

The nearly 3,000 MW of new solar capacity doesn't tell the whole story. Non-utility scale additions of 1MW or less, which were not counted in this report, totaled approximately 1,900 MW.

Approximately 75% of new solar capacity is located in California, which is struggling with supply issues following the shutdown of the San Onofre Nuclear Generation Station, or SONGS, in 2013. That retirement came on the heels of an unexpected and widescale blackout in 2012. These types of issues are highlighting the need for new energy sources that comply with the state's stringent environmental standards (set forth in the California Renewable Portfolio Standard Policy), which requires 33% of all energy come from renewable sources by 2020.

Increasing cost efficiency and looming renewable mandates have California utility companies scrambling to add solar capacity to their power distribution weighting. First Solar (NASDAQ:FSLR) is a utility-scale solar provider that is poised to capitalize on this shift. It provides planning, financing, development, engineering, and installation of solar projects that now total over 8 gigawatts globally.

Upon completion it often acts as operator for the owners of solar facilities. This is the case for the Agua Caliente Solar Plant, one of the world's largest solar plants in operation, with 250 MW connected to the electricity grid.

But two projects are in the works that look to dwarf the Agua Caliente installation.

Located in San Luis Obispo, CA, the Topaz Solar Farm is projecting a 550 MW capacity, enough to power 160,000 homes. PG&E (NYSE:PCG) entered into a 25-year power purchase agreement, or PPA, in 2008 when the project was announced. First Solar is responsible for the construction, operation, and maintenance of this $2 billion facility through an agreement with owners MidAmerican Energy, a Berkshire Hathaway-controlled company.

Another First Solar project is the Desert Sunlight Solar Farm located in Riverside CA. This project also has a 550 MW capacity and is expected to be completed in 2015. Power will be purchased by PG&E and Southern California Edison, which is owned by Edison International.

If bigger proves to be better, these solar installations could one day find themselves overshadowed by even larger projects seeking to capitalize on cost advantages found through economies of scale. With its track record, First Solar would be the first name in pursuing these projects.

But investors are having a tough time buying into the solar resurgence. After having been scorched by huge declines following the bubble of 2007-2008, many are shunning the solar industry all together. This leaves companies like First Solar, which has solid earnings growth and sales projections going forward, heavily undervalued. Currently trading around a 19 P/E, First Solar's own guidance for 2015 shows the potential for $6 EPS, bringing the forward P/E to 11.45. Bookings for 2013 projects totaled 1.3 GW, which should keep First Solar very busy for years to come, and may even necessitate further expansion of its operations.

The payoff
Numerous reasons exist for increasing solar capacity in the utility sector. Cost efficiency has provided some incentive. Government involvement continues to be a key contributor as state mandates influence decisions. But there are also federal mandates, such as Mercury Air and Toxics Standards, or MATS, which is projected to take almost 20% of total coal fired generation offline by 2016.

Finally, incentives will continue to be available in various forms to encourage power generation with a positive public perception. First Solar stands poised to benefit from these developments.

James Catlin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.