Activist investor Paul Singer's bid to overhaul power producer NRG Energy paid off handsomely on Wednesday as investors sent the stock price soaring.

Shares of NRG surged about 25 percent to about $20.45 after the company announced a transformation plan that, if successful, would reduce its debt load and free up billions of dollars for strategic purchases and shareholder payouts.

Singer, the hedge fund titan behind Elliott Management, revealed his stake in NRG in January, along with plans to push for strategic and operational changes aimed at increasing value for shareholders. He partnered with Bluescape Energy, an investment firm chaired by utility industry heavyweight Charles John Wilder Jr., to build a position big enough to lobby for change.

Elliott secured a spot for Wilder and former Texas Public Utility Commission chairman Barry T. Smitherman on NRG's board in February, and the two were involved in a four-month review of the company's business.

NRG Energy one-year performance

The result of the review is a plan to raise $2.5 to $4 billion by divesting 50 to 100 percent of its NRG Yield renewable energy business and some of its conventional energy assets, which includes coal and natural gas plants. NRG also aims to remove $13 billion in debt from its balance sheet and generate $855 million in annual free cash flow.

If the plan is 100 percent successful, it will generate $6.3 billion in cash through 2020, which NRG expects to spend on projects or investments.

That is a tall order, but investors have faith in Wilder, the former CEO and chief executive of Texas electric utility TXU Corporation. Wilder turned around TXU and positioned it for a successful 2007 sale, said Neel Mitra, director of power and utilities at Tudor Pickering Holt.

"They have some very aggressive cost cuts, and the reason as to why people are buying into them is this business review committee was run by John Wilder, who is pretty much regarded as one of the most powerful and successful names in the power industry," he told CNBC.

"His name behind that committee is adding some credibility to some pretty large numbers," said Mitra, who advised buying the stock at current levels.