The Brattle Group estimates 40 gigawatts of new renewable energy capacity will have to be built in the US over the next 20 years just to meet current state mandates. And that figure could rise markedly if President-elect Obama weighs in with a national standard.

The incoming government has also proposed spending hundreds of billions of dollars on new energy infrastructure as well as to develop new clean energy technologies. That’s in addition to the billions spent by the outgoing government and the package of renewable energy tax credits passed along with the omnibus financial system bailout package in October.

On the consumer level, alternative energy remains popular. Solar industry observers expect a 40 percent surge in US orders for rooftop solar panels, despite the deepest housing industry slump in decades. And utilities are getting in on the act as well, contracting a new generation of large-scale solar power stations and actually installing panels themselves for customers.

With all of this enthusiasm, you might reasonably expect renewable energy stocks to be among the few bright spots in the current washed out market. Ironically, they’ve been among the absolute worst performers.

Suncor Energy (NYSE: SU) and SunPower (NSDQ: SPWRA)–two of the leading players in solar energy–have both crashed more than 80 percent in just a few months. Meanwhile, Vestas Wind Systems (OTC: VWSYF), the globe’s leading pure play on air currents, has crashed more than 70 percent. Scores of smaller companies are faring far worse, and venture capital-funded projects are being cancelled all over the country.

What’s going on here is political fantasy is meeting economic reality. To be sure, there are plenty of willing buyers of green products. Utilities in particular are investing in negawatts as never before and are building out their renewable energy fleets. Duke Energy (NYSE: DUK) recently inked a major deal with Wal-Mart (NYSE: WMT) to supply up to 15 percent of the energy used by the retail giant’s Texas facilities.

However, with oil prices breaking USD50 on the downside recently, much of the fire seems to have gone out of the energy independence movement. And what’s competitive at USD100 oil isn’t necessarily so at USD50 or less. Finally, the credit crunch itself has made it infinitely more difficult to get loans for renewable energy projects, unless the borrower is very large and creditworthy like Duke.

Sellers of alternative energy companies seem to be giving up the ghost. Namely, the assumption seems to be that oil has had its bubble and will now settle in at a much lower price. By that reading, renewables simply won’t be competitive. The appeal will wane just as it did following the 1970s energy crisis, and the industry will slide into oblivion again until the next oil crisis.

The trouble with that analysis is it ignores two major elephants in the room. The main one is that USD50 oil isn’t really sustainable in today’s world, unless one assumes growth in China, India and other developing nations is done for the cycle. That is what happened in the early ’80s in much of the world, though Chinese demand did continue to grow. And the result was two decades of rock bottom energy prices in which oil regained its dominance and alternative energy went the way of bell-bottom jeans.

But today’s China isn’t the insular communist nation it was then. Rather, the government is set on continued rapid development, the clear implication of the massive stimulus package announced last week. It’s also a far larger economy today, as are India, the rest of developing Asia and the Middle East. And as these new markets develop, global oil demand is only going to keep growing, even if the US market never revives.

The crash in oil during the ’80s also had another factor behind it: the rapid discovery and development of North Sea oil as a new source of conventional output to compete directly with OPEC. Today all the new sources of the fuel are non-conventional, from the oil sands of Canada to the undersea Tupi Field off the coast of Brazil, where companies are going three miles below the ocean floor, including through a mile of salt, to get to the prize.

Non-conventional oil requires a much higher price than USD50 to be economic to develop. The world may get by on what it has now as it sinks into recession. But sooner or later it will need a lot more to keep up with demand. And with reserve exploitation and conservation diminished by falling energy prices, it will need it in a hurry.

The other major factor is the world’s desire to restrict the carbon dioxide (CO₂) emissions blamed for causing climate change. The Bush administration was long the holdout on the international scene for global carbon regulation. That won’t be the case under the incoming Obama administration. And with Henry Waxman (D-CA) replacing John Dingell (D-MI) as the House of Representatives’ chief mover on CO₂, the president-elect will have all the support he needs to get something through.

Action will likely focus more on incentives and funding than punishing CO₂ emitters. These are in large part coal-burning utilities that provide power to residents of less affluent states, and the new government will be loath to do anything to drive up their rates precipitously.

This approach is a major plus for renewable energy in the US. And it will also get plenty of help in the states. California voters flunked a draconian plan to order 50 percent of power to come from renewable sources in just 10 years. But Governor Arnold Schwarzenegger has already proposed his plan for a 33 percent standard, an enormous boon to developers.

The bottom line is the opportunity is clearly there for alternative energy companies. The problem is it may take awhile before oil prices revive and interest comes back to their shares. And with financial institutions still under repair, it may be awhile before credit markets resume their interest as well.

To cash in a company must be able to grow during these tough times. And that means being big and financially strong enough to weather shocks, strengths most sector companies don’t yet possess.

Like all industries essentially based on technology development, renewable energy companies have historically been relatively small. The early pioneers came into flower during the late ’70s, when President Jimmy Carter passed the Public Utility Regulatory Power Act (PURPA).

PURPA essentially mandated that utilities buy all the output from a range of designated alternative energy companies, and at premium prices. By the mid- to late ’80s, much of the industry it spawned had died out in the face of lower oil prices that made its fledgling technologies completely uncompetitive. And despite some efforts to revive federal funding during the Clinton administration of the ’90s, that’s pretty much where it stayed before reviving in the face of rising oil prices this decade.

This time around, state mandates for utilities to use renewables provide support. And the technology has advanced rapidly as well, particularly for wind, which is now basically competitive with natural gas power at USD5 per million British thermal units. The biggest difference between now and then, however, is that larger companies are taking the lead.

Since the days of Edison and Insull, electricity has been a scale business. There are some places where small scale makes sense, particularly in less developed areas where running power lines is prohibitively expensive. But for the most part larger organizations and facilities have more ability to provide better service to more people at a lower cost. And those economics haven’t changed in over a century.

One of the reasons the renewables movement failed in earlier incarnations was that it never had the support of incumbent utilities, whose management largely viewed it as tantamount to communism. Every time alternatives flourished, utilities bided their time and eventually crushed it.

Those days, however, are now long gone. Rather, today’s generation of utility management is looking for ways to meet demand and environmental mandates in ways best calculated to win regulatory support. And there’s nothing like renewable fuels and conservation these days to get the thumbs up for breaking ground–or more important, for earning generous returns on investment.

The major alternative energy players can basically be carved into three groups: technology leaders, building companies and operators, who are the best bets for the more conservative.

One of the latter that looks particularly attractive now is AES Corp (NYSE: AES). In roughly 30 years, the company has grown from the brainchild of two academics to a global giant with operations in 29 countries on five continents. Easily the most global power company in the world, AES owns generation and distribution facilities with the capacity to serve 100 million people worldwide. It owns regulated utilities with annual sales of 76,000 gigawatt hours and 124 generation facilities with a combined capacity of 43,000 megawatts.

The company’s growth was nearly uninterrupted from the early ’80s until 2001, when it struck a reef in the form of very heavy debt and political turmoil in several countries it served. At one point the shares broke below USD1 and bankruptcy seemed imminent. That’s when the original owners turned to a new management team, with the result of a much tighter ship and a new surge of growth that’s persisted since.

Despite slowing global growth, third quarter results were robust, as earnings adjusted for one-time items soared 47 percent. All operations showed healthy growth as revenue rose 25 percent and gross margins turned up 13 percent. And despite a credit rating of just BB- from S&P, the company also showed its prowess dealing with tough credit markets, essentially eliminating the need to finance anything until 2010 other than with internal cash flow. And with 93 percent of debt financed in the currency where the attached asset is located, it’s avoided the currency market shocks as well.

All of those are stark contrasts with where AES was six years ago. Yet the stock currently trades at roughly a third of its 52-week high and less than four times earnings, despite management’s expectations of double-digit annual growth well into the next decade. Moreover, the company hasn’t changed its cash flow forecasts in recent months, a testament to how solid its projects are.

Looking ahead, AES is making a major thrust to build and operate renewable energy resources in fast-growing China and the rest of developing Asia. It’s also a player in energy storage technology via its alliance with another New World 3.0 favorite, Altair Nanotechnologies (NSDQ: ALTI). The latter, of which AES owns 3 percent, has a joint development agreement with a subsidiary of AES for grid-scale energy storage solutions.

The pair’s efforts took a major leap forward this week with the successful testing of a 1 megawatt, 250 kilowatt-hour battery storage system, which met requirements to participate in the PJM Regional Transmission Organization (RTO) control area. This was the first commercial acceptance of an advanced lithium-titanate battery for grid regulation services in a major US market and holds great promise for their future endeavors.

Our goal at New World 3.0 in the current market is to buy strong companies at as low prices as possible. That’s certainly the case for AES now, and we’re adding it to the Portfolio. Buy AES Corp up to USD10.