To say 2023 has been a rough year for NextEra Energy Partners (NEP -0.89%) would be an understatement. Shares of the renewable energy producer currently sit 67% below their peak value, with the bulk of that slide coming in recent weeks. While the company faces significant challenges, it has a solid foundation to help it get through this rough patch.

It also has a solid plan in place to address its issues while also continuing to expand its operations and cash flow. Because of that, it has a bright future despite the dark clouds currently overshadowing the company.

The underlying business remains strong

The issues facing NextEra Energy Partners were a hot topic of conversation on the joint third-quarter conference call with its parent, NextEra Energy (NEE -1.36%). Kirk Crews, the parent company's chief financial officer, said that the partnership is a financing vehicle that acquires energy infrastructure assets backed by long-term contracts with low-cost financing. Its primary funding source has been convertible equity portfolio financing (CEPF) with institutional investors like private equity funds. These had a low interest rate and converted into equity over time.

Unfortunately, a large percentage of this financing is maturing as interest rates have soared, which weighed on NextEra Energy Partners' valuation. That made it difficult to support that entity's ambitious plan to grow its distribution by at least 12% annually. NextEra Energy Partners' recent decision to slash its growth forecast in half has put even more downward pressure on its valuation. That pushed its dividend yield into the double digits.

While the company is facing stiff near-term financing headwinds, the underlying business remains strong. Crews commented on the call: 

It's important not to lose sight of the value of the underlying portfolio. NextEra Energy Partners is the seventh-largest producer of electricity from the wind and the sun in the world, with over 10 gigawatts of renewables in operation. The partnership owns renewable projects that deliver high-quality cash flows in 30 states, serving 94 customers with an average counterparty credit rating of BBB plus via contracts with an average remaining contract life of 14 years. We remain optimistic the partnership can be an attractive vehicle to own existing renewable assets over the long term.

As Crews points out, NextEra Energy Partners is one of the largest renewable energy producers in the world. It has a diversified portfolio of high-quality wind and solar assets that generate clean power that it sells to credit-worthy customers under long-term contracts.

Those agreements supply it with predictable cash flow, which it uses to fund its high-yielding dividend. Despite its financing headwinds and the current macroeconomic conditions, NextEra Energy Partners expects to produce $730 million to $820 million in cash available for distribution this year. That's slightly less than its initial forecast of $770 million to $860 million due to the expected sale of its portfolio of Texas natural gas pipelines in the fourth quarter.

A plan to get back on track

NextEra Energy's management team has developed a strategy to address the partnership's financing issues while continuing to grow its high-yielding distribution. The first part of the plan is to sell off its natural gas pipelines over the next couple of years and use most of the proceeds to steadily buy out the CPEFs. The company has launched a process to sell its Texas pipelines.

It has also already completed the final buyouts of $402 million of the STX Midstream CEPF with its credit facility, which it will replenish upon selling these pipelines. It plans to sell its Meade pipeline assets in 2025 to fund the buyouts of 2019 NEP Pipelines and NEP Renewable II CEPFs. That would leave it with only $147 million of the Genesis Holding CEPF due in 2026. 

Meanwhile, the company recently shed some light on how it intends to continue growing in light of its trouble obtaining new financing. Crews said on the call: "NextEra Energy Partners is focused on executing against its growth plan for unitholders. That plan involves organic growth, specifically repowering of approximately 1.3 gigawatts of wind projects, as well as acquiring assets from energy resources or third parties at favorable yields."

The company has already identified 740 megawatts of wind farms to repower through 2026. These high-return projects, which it will internally finance with either tax equity or project-specific debt, should meaningfully boost its cash flow to support its reset dividend growth plan. 

A massive overreaction

The nearly 70% plunge in NextEra Energy Partners' share price seems a bit much. While the company is facing some financing challenges, the underlying business continues to perform well. Meanwhile, it has a solid action plan to address its funding issues while continuing to grow its dividend.

Because of that, it looks like a very compelling investment opportunity for those seeking a high yield with high upside potential.