Electric utilities are considered good defensive hedges against economic uncertainty and market volatility because of the unchanging demand for electricity as well as their steady earnings. This typically translates into relatively low share price volatility, but this has not been the case for troubled electric utility Atlantic Power Corp. (TSX:ATP)(NYSE:AT). Its share price remains under pressure, having plunged a massive 14% over the last year as it has struggled to turn around its faltering balance sheet and find meaningful growth opportunities.

However, there are signs that this sub-$5 stock could now be a genuine turnaround opportunity. 

Now what?

Atlantic Power has struggled in recent years, having gorged itself on debt to acquire assets of questionable quality. This left it particularly vulnerable to a range of market ructions, with it struggling to meet its financial obligations, and fears of an impending rate rise in the U.S. that would see the cost of maintaining its U.S. dollar denominated debt rise.

Then there are worries that it has no real growth opportunities, leaving it unable to unlock value for investors and rebound from recent lows.

Nonetheless, there are signs that Atlantic Power offers value for investors seeking genuine turnaround opportunities.

It has commenced an asset-divestment program aimed at selling non-core assets and reducing the pile of debt on its heavily leveraged balance sheet. It completed the sale of its wind assets in June 2015 for US$350 million. These proceeds were then used to redeem its 9% unsecured notes due in 2018, thereby reducing its leverage.

As a result, its debt now totals US$1.1 billion, an US$800 million reduction since 2013. This large reduction in debt is generating annualized interest savings of US$65 million, and such an aggressive reduction will help to shield Atlantic Power from the impact of a U.S. rate rise.

Then you have the fact that Atlantic Power’s portfolio of power-generating assets is primarily composed of clean power assets including natural gas, biomass, and hydroelectric plants. This means that with only one coal-fired plant, it is not heavily exposed to the headwinds surrounding coal-fired power generation, which has become a key regulatory target in the battle to reduce greenhouse emissions.

There are already moves afoot in Canada and the U.S. to effectively regulate coal-fired power generation out of existence because it is one of the largest emitters of greenhouse gases. This will create a costly burden for those electric utilities that are heavily dependent on coal-fired power generation because it will require them to transition their portfolio to more environmentally friendly means of generating electricity.

Like all electric utilities, Atlantic Power possesses a wide economic moat that helps to protect it from competition. This, along with the heavily regulated nature of the industry, adds a degree of certainty to its earnings.

We shouldn’t forget about its dividend, which, even after being cut twice over the last two years, still offers investors a tasty 4.4% yield. This will continue to reward patient investors as they wait for Atlantic Power’s turnaround to gain further traction and cause its share price to appreciate in value. 

So what?

An investment in Atlantic Power is not for the fainthearted. The company has wrestled with a range of issues in recent years, but there are growing signs that its turnaround strategy is gaining traction, which, when coupled with its wide economic moat, makes it an attractive turnaround play.

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Fool contributor Matt Smith has no position in any stocks mentioned.