First Solar, the undisputed top dog in the thin-film solar industry, has made a move that could prove revolutionary for the solar market. It has invested in SolarCity, a residential and commercial solar installer in San Francisco.

SolarCity will receive $25 million from First Solar, part of a total $30 million investment that the company is announcing today. But more importantly, the company is getting a contract from First Solar for 100 megawatts worth of thin-film solar panels over a five year period.

A number of industry watchers have opined that thin-film will work on commercial rooftops, but not homes, because the panels, while much cheaper than traditional silicon-based technology, are also less efficient — meaning more space is required for a similar energy output.

However, thin-film companies are eager to open the residential markets to their panels, and it appears that installers and solar service companies like SolarCity are open to the idea. That may be because SolarCity leases out panels to customers, instead of selling systems directly. By selling the same amount of power but using cheaper panels, SolarCity could easily increase its own margins.

Thus, one major advantage to using thin-film will be access to markets that have lower electricity costs, and fewer rebates for solar than California, where SolarCity’s main operations are, according to director of communications Jonathan Bass. Customers often only need solar panels to remove some of the load during peak periods, rather than handle all the electricity needs of their home, so cheap, low-cost panels could be a good fit.

Of course, the panels themselves are only around half the cost of adding solar to a building. The other half of the cost is the installation itself. First Solar panels are smaller than traditional photovoltaics, implying that more will need to be installed, but Bass says it’s too early to tell what the cost differences will be.

First Solar’s panels will begin to be delivered to SolarCity in the first quarter of 2009. The latter company will also be moving into five to ten new states next year although it hasn’t announced which ones yet. Although some installers are being challenged by the debt markets, Bass says SolarCity isn’t one of them, due to its partnership with Morgan Stanley, which has survived the downturn relatively unscathed.

The last equity round SolarCity raised was last September, when it took $21 million from Draper Fisher Jurvetson, JP Morgan and Elon Musk. The company has taken over $60 million to date.