Octopus Energy is in detailed talks to buy Shell’s household energy customer base – a deal that would edge the company closer to challenging British Gas as the UK’s biggest domestic gas and electricity supplier.

Sky News has learnt that Octopus Energy, run by Greg Jackson, has emerged as the frontrunner to acquire Shell Energy Retail – six months after the oil behemoth placed the division under strategic review.

City sources said on Friday that other parties remained in the frame to buy the business from Shell, adding that Octopus Energy was not in formal exclusivity and that a superior offer could yet emerge.

They said, however, that Shell anticipated being able to sign a sale agreement during the autumn.

If completed, a takeover by Octopus Energy would take the number of homes it supplies in the UK to about 6.5 million – still short of Centrica-owned British Gas but larger than virtually every other competitor in the UK market.

It was unclear on Friday whether Octopus Energy would also want to retain the much smaller energy retail businesses that Shell is selling as part of the disposal package in Germany and the Netherlands.

Sources said that Mr Jackson would seek to offload Shell’s 500,000-strong UK broadband customer base that is also being sold.

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Shell announced a formal divestment process in the spring, saying that selling the unit would remove about $300m (£238m) in annual operating expenses.

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The news that Octopus Energy is the leading contender to buy the Shell business has emerged on the same day that Ofgem, the industry regulator, announced that the energy price cap would fall this winter to £1,923 from £2,074.

The watchdog’s chief executive, Jonathan Brearley, warned, though, that prices would remain volatile for the foreseeable future.

Sky News revealed earlier this year that Ovo Energy was also interested in a deal, while British Gas was also reported to have submitted an offer.

Octopus Energy has been transformed in scale in recent years, most recently having acquired Bulb Energy, which had about 1.7m household customers, following its collapse into insolvency.

Lazard, the investment bank, is handling the auction on Shell’s behalf.

Octopus Energy and Shell both declined to comment.

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